Stamp Tax Exemption on Treasury Operations Under Article 7(1)(g) CIS – CAAD Decision 163/2015-T

ARBITRAL DECISION

I - REPORT

1. On 13 March 2015, A…, S.A., taxpayer no. …, hereinafter referred to as Claimant, with its registered office in Portugal, requested the constitution of an arbitral tribunal and submitted a request for an arbitral ruling, pursuant to the combined provisions of subsection a) of paragraph 1 of Article 2 and subsection a) of paragraph 1 of Article 10 of Decree-Law no. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), wherein the Tax and Customs Authority (hereinafter referred to as TCA) is the Respondent.

2. The Claimant is represented in the present proceedings by its mandatary, Dr. … and the Respondent is represented by the legal advisors, … and … .

3. The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD and was notified to the Respondent on 13 March 2015.

4. By means of the request for constitution of the arbitral tribunal and for an arbitral ruling, the Claimant seeks the annulment of the Stamp Duty assessment act, paid in the Withholding Tax Declaration – PIT/CIT/Stamp Duty – with no. …, relating to the year 2014, in the amount of € 6,200.00 (six thousand two hundred euros).

5. Having verified the formal regularity of the request submitted, pursuant to subsection a) of paragraph 2 of Article 6 of the RJAT, and the Claimant having not proceeded to nominate an arbitrator, the undersigned was appointed by the President of the Deontological Council of CAAD.

6. The Arbitrator accepted the appointment made, and the arbitral tribunal was constituted on 21 May 2015, at the registered office of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as per the deed of constitution of the arbitral tribunal that was executed and is attached to the present proceedings.

7. Notified for such purpose on 22 May 2015, the TCA submitted its Reply on 24 June, having attached the Administrative File on 26 June 2015.

8. On 17 July 2015 a Ruling was issued by means of which the Tribunal requested the Claimant to, given the exceptions raised by the Respondent, pronounce itself on them, also providing guidance, regarding the matter of evidence, on the facts set out in the initial Request to which it wishes the witnesses to testify.

All, without prejudice to the scheduling of the meeting referred to in Article 18 of the RJAT.

1. By request of 28 July, the Claimant complied with the Tribunal's prior Ruling, pronounced itself on the exceptions, completed the identification of the witnesses and provided an indication of the facts to which it wishes them to be heard.

2. By Ruling of 11 September 2015, the Tribunal scheduled the meeting of Article 18 of the RJAT for 22 October 2015.

3. On 22 September, the TCA came to request, attaching extensive argumentation for such purpose, that the Tribunal pronounce itself on the request for dismissal of witness evidence, which was answered by the Claimant, as per request attached on 1 October, arguing for the untimeliness of the request submitted by the TCA on 22 September, defending the examination of the witnesses it had listed and proceeding to attach various documents.

4. Dissatisfied with this procedure, the TCA, by means of request of 19 October, submitted its defense regarding the alleged untimeliness of its prior request concerning the non-examination of witnesses, arguing for the untimeliness, however, of the documents meanwhile attached by the Claimant, whose removal from the file it requested.

5. The meeting of Article 18 of the RJAT took place, as scheduled, on 22 October 2015, with the Tribunal pronouncing itself on various issues raised by the parties throughout the proceedings, and in the following manner:

"With respect to the fact that the request submitted by the Respondent on 22.09.2015 is considered untimely by the Claimant, the tribunal considers it as timely, in light of the arguments presented by the TCA in its request of 19.10.2015, this despite the matter covered therein being superseded, given that the Tribunal considers that the witnesses listed should always be heard, in accordance with the principle of discovery of material truth, having further regard to the fact that, pursuant to Article 16, e) of the RJAT, one of the principles to be respected in the arbitral proceedings is precisely the "…free determination of the evidentiary procedures necessary, in accordance with the rules of experience and the free conviction of the arbitrators".

The same is to be said, in respect of the same principles, as regards the final attachment of documents by the Claimant (01.10.2015), which will be maintained in the file and subject to evaluation to be determined at the time of the arbitral decision.

There will also be considered the two exceptions raised by the TCA in its Reply, both relating to the material incompetence of the Tribunal."

1. Subsequently, the witnesses listed by the Claimant were heard, with the parties being notified to submit written submissions within a period of 10 days, with the period for the Respondent commencing from its notification of the submission of the Claimant's submissions.

2. The Tribunal, in compliance with Article 18, paragraph 2 of the RJAT, designated 11 January 2016 as the date for rendering the decision, this being after it decided to extend the time limit for decision by two months, pursuant to paragraph 2 of Article 21 of the RJAT.

3. The Claimant submitted its submissions on 29 October 2015, and the Respondent submitted its submissions on 12 November 2015.

II – Request Presented by the Claimant

1. The Claimant formulated its request for annulment of the Stamp Duty assessment act for the year 2014, in the amount of € 6,200.00 (six thousand two hundred euros) as follows.

2. At issue is the legality of the Stamp Duty assessment incorrectly paid in the Withholding Tax Declaration – PIT/CIT/Stamp Duty – with no. …, in the amount of € 6,200.00 (six thousand two hundred euros), identified with the code …-SD – financial operations.

3. After stating that the Claimant is a joint-stock company governed by Portuguese law, whose principal activity is retail trade in non-specialized establishments, which is subject to the general tax regime under Corporate Income Tax and which adopts a taxation period not coinciding with the calendar year (starting on 1 March and ending on 28 or 29 February), it states that its share capital is held in 99% by the company B…, S.A. (parent company).

4. It subsequently states that it has granted, at the request of and for the benefit of the parent company, in 2014, a financing to the company B…, S.A. (parent company), in the amount of € 15,500,000.00 (fifteen million five hundred thousand euros), which was intended exclusively, according to its claim, to cover liquidity shortfalls of the parent company.

5. In particular:

i) The amount of € 15,500,000.00 was transferred by the Claimant to the parent company on 26 February 2014;

ii) The amount of € 15,500,000.00 was returned by the parent company to the Claimant on 28 February 2014.

1. On this operation, Stamp Duty under item 17.1.1 of the General Stamp Duty Table (GSDT) was assessed in the amount of € 6,200.00.

2. This tax, initially charged to the parent company, was subsequently credited to the Claimant, which came to bear it. Thus, the Claimant, invested as the legitimate party in the request for annulment made through submission of a petition for equitable review, manifested the intention to obtain restitution of the tax paid, pursuant to subsection g) of paragraph 1 of Article 7 of the Stamp Duty Code (in the version as amended by Law no. 83-C/2013 of 31 December), given the verification, in its understanding, in the specific case, of the requirements there established, reason why it understands that the request for restitution of the tax submitted by it should have been granted by the TCA, which did not happen.

3. Reason why it submitted the appropriate petition for equitable review, which was likewise dismissed, by Ruling of the Head of Division (as substitute) of the Administration of Justice of the Tax Administration Directorate of Lisbon, of the Tax and Customs Authority, issued on 9 December 2014, notified to the Claimant on 12 December 2014.

4. According to the Claimant, the arguments used by the TCA regarding the dismissal of the petition submitted by it are as follows, transcribing the text of the dismissal decision itself:

"With respect to the purpose of the loan, the attachment to the file of a copy of the contract does not constitute proof that it was actually aimed – and exclusively – at covering liquidity shortfalls".

On the other hand, "(…) the petitioner says nothing regarding the circumstance that the other company party to the loan (…) does not have its seat or effective management in the national territory. That is, (…) it says nothing about the non-verification of one of the requirements on which, pursuant to Article 7, paragraph 2 of the SDC, the sought exemption depends (…)"

1. That is, regarding the purpose of the loan, the TCA considers there to be insufficient evidence, not resulting from the contract attached to the file that the financing actually covered "… the covering of liquidity shortfall."

2. And, on the other hand, the TCA considers that the requirements on which the sought exemption depends were not met (Article 7, paragraph 2 SDC), since the other company party to the loan does not have its seat or effective management in the national territory.

3. And the Claimant alleges in its defense the following:

a) As to the first argument:

i) Given the period to which the loan relates, granted for an extremely short period – two days – this alone reveals that it is intended exclusively for urgent needs of liquidity shortfall, contending that, given the alleged insufficient evidence, the Claimant proposes to present additional evidence;

ii) Thus, the requirements established in subsection g) of paragraph 1 of Article 7 of the SDC are met:

• The stamp duty applies to a financial operation for a period not exceeding 1 year (two days);

• exclusively intended to cover liquidity shortfalls;

• it was made by the Claimant for the benefit of the company holding 99% of its shares.

b) As to the second argument:

i) The exclusion of the exemption provided for in paragraph 2 of Article 7 of the SDC applies to parties that do not have their seat or effective management in the national territory, but it provides an exception for creditors with seat or effective management in another Member State of the European Union, so that these may benefit from the exemption, pursuant to paragraph 1 of Article 7 of the SDC;

ii) The TCA's argument makes no sense, and is contrary to the principles of equality, legality and non-discrimination based on residence, which prevails in Community Law – as it seeks to place creditors with seat or effective management in the national territory alongside creditors with seat or effective management that are not members of the European Union, thus not benefiting from the exemption provided for in subsection g) of paragraph 1 of Article 7 of the SDC.

1. Finally, the Claimant invokes that the stamp duty in question does not apply to the operation in the present case, being manifestly excluded from the scope of the SDC.

This is because Article 4 of the SDC establishes that "stamp duty applies to all the facts referred to in Article 1 occurring in the national territory."

1. That is:

"The financing on which stamp duty fell was made for the benefit of the 'parent company', a company of Spanish Law, with seat in Spain, with the consequent use of financial funds outside the national territory", with the contract embodying the operation having been concluded in Spain.

1. Before concluding, the Claimant concludes that the assessment of the tax in question violates Articles 1, 4, 7 paragraph 1 subsection g), all of the SDC, reason why the non-restitution of the amount of stamp duty incorrectly paid infringes the principle of legality provided for in Article 8 of the General Tax Code, as well as in Article 103 of the Constitution.

2. And it concludes by requesting the Arbitral Tribunal to decree the annulment of the stamp duty assessment incorrectly paid and to revoke the decision dismissing the petition for equitable review, ordering the consequent restitution of the amount incorrectly paid in the Withholding Tax Declaration – PIT/CIT/Stamp Duty – with no. …, in the amount of € 6,200.00, with all legal consequences.

3. In the submissions presented by it, the Claimant reproduced and reinforced the arguments presented here in support of the merits of the request for an arbitral ruling.

III – The Reply of the Respondent/TCA

1. In response to the request for an arbitral ruling, the TCA submitted its Reply, where it defends the following position.

2. It begins by stating that the petition for equitable review submitted by the Claimant was dismissed, and it does not have the right to enjoy the exemption provided for in Article 7, paragraph 1 subsection g) of the SDC, because:

"- it did not prove, in the course of the proceedings, that all the necessary requirements for enjoying said exemption were met;

• if it is understood that the loan operation fell within the terms of Article 7, paragraph 2 of the SDC, what would be an additional obstacle to enjoying the mentioned exemption."

1. After relating the facts relevant to the assessment of the request, in its reply the TCA sustains the arguments raised by the Claimant in the petition submitted by it.

2. It subsequently addresses a matter of procedural legitimacy, resulting from the fact that the Stamp Duty was assessed by the company B…, S.A., which bore the economic burden thereof, having made the entry in its accounts, being the party interested in the dispute and with legitimacy to petition and not the present Claimant here.

A defect that was cured by the Claimant, as it cancelled the debit of the tax from the parent company, assuming the burden of its payment and thus recovering the procedural legitimacy lost.

1. It subsequently invokes the following exceptions:

"1. From the material incompetence of the Arbitral Tribunal in that the legality of assessment acts was not considered in the petition for equitable review.

1. From the material incompetence of the Arbitral Tribunal by the impossibility of deciding based on new arguments that did not appear in the petition for equitable review."

2. Finally, by way of impugning arguments, the TCA states the following in its Reply.

3. Recalling the basis of the Claimant's argument, in the sense that the financial operations carried out were intended to cover mere liquidity shortfalls, the TCA concluded that the Claimant did not present proof that sustains "in fact, said shortfall", without presenting any documentation.

4. There the Respondent defends that, observing the request for an arbitral ruling, it can be concluded that the arguments used by the Claimant are the same, with the exception of those contained in Article 25 and following of the initial request, being that, in its opinion, the Tribunal's powers of determination are limited to the knowledge of those repeated between the petition for equitable review and the request for an arbitral ruling, excluding from this those invoked only in this latter instance.

5. Despite what it states, the Respondent analyzes the sole documentation attached to the file by the Claimant and which consists of the loan contract concluded between the Claimant and its parent company, to conclude that none of its clauses mentions the reason underlying the loan in question.

6. Nothing appears regarding whether the financing was granted by the alleged, but unproven, pressing need to cover liquidity shortfalls or whether it results from commercial or corporate reasons, or from any other reason.

7. And the TCA understands that the fact that the financing was intended to cover liquidity shortfalls cannot be inferred, as the Claimant argues, from the simple fact that the loan was concluded between related entities and only lasted two days.

8. And the proof that the financing in question is intended for such shortfalls is the burden of the Claimant, pursuant to Article 74 of the General Tax Code, citing TCA case law to that effect.

9. The Respondent understands that the requirements are not met for the Claimant to apply to the situation sub judice the exemption provided for in Article 7, paragraph 1, subsection g) of the SDC.

10. In the terms of this provision, the exemption in question depends, inevitably, on the existence of:

i) The verification of a period not exceeding one year;

ii) The performance of the operation by certain entities under certain conditions; and,

iii) The exclusive purpose of covering liquidity shortfalls.

1. Thus, for the application of the exemption the filling of the subjective requirement (existence of a certain type of relationship between the parties, but also the verification of the temporal and objective requirements, mentioned in points i) and iii) was imposed (The Reply, in its Article 75, refers to ii) and iii), certainly by oversight, as the temporal requirement appears in i).

2. Requirements which, concludes the TCA, are not proven in the file.

3. The Respondent equally invokes that the loan operation in question would always be subject to taxation under Stamp Duty, given the provision of Article 7, paragraph 2 of the SDC, this because one of the parties to the contract does not have its seat or effective management in the national territory.

4. The TCA further states that, pursuant to the combined provisions of Articles 1, 4 paragraph 1 and 5 subsection g), all of the SDC, the operation in question – loan contract – is covered by Article 1 of the SDC – acts or contracts occurring in the national territory, the birth of the tax obligation occurs at the moment in which the credit operation is shown to be made and, having the operation in question been made by an entity domiciled in the national territory, the tax fact occurs in this same territory, and falls under Article 4 paragraph 1 of the SDC.

5. This is because, as the TCA states:

"the tax fact is not barometrized by the use of credit, but rather by the granting of credit."

IV - The Exceptions Raised by the Respondent TCA

In its defense, by way of exception, the TCA Respondent here raises two exceptions, which require assessment by the Tribunal.

1. The first is as follows:

"From the material incompetence of the Arbitral Tribunal in that the legality of the assessment act was not considered in the petition for equitable review."

1. The Respondent understands that the act subject to an arbitral ruling by the Claimant is only the decision dismissing the petition for equitable review, all the more so since the Claimant only requested "the restitution of the incorrect payment of stamp duty in document identified with no. … of February/2014", it not having requested (in the petition for equitable review) the annulment of any self-assessment act.

The TCA admits that it was only in arbitration that the Respondent concluded regarding the "annulment of the stamp duty assessment", requesting in consequence the annulment of the administrative decision that fell upon the petition for equitable review and the restitution of the tax paid, concluding the TCA that given the foregoing "… the request for an arbitral ruling has as its immediate object the decision dismissing the petition for equitable review, but does not, however, have as its immediate object any tax assessment act."

Reason why the Respondent understands that we are faced with an administrative act in tax matters which, by not assessing or discussing the legality of the self-assessment act, cannot be reviewable through judicial challenge, pursuant to subsection a) of paragraph 1 of Article 97 of the Code of Tax Procedure and Process.

Linking this reality with the provision of Article 2 of the RJAT and Ordinance no. 112-A/2011 of 22 March, the TCA concludes that the decision dismissing the petition for equitable review is not included therein.

Consequently, the request for an arbitral ruling cannot be known by the Tribunal, given the verification of the dilatory exception which translates into the incompetence of the Tribunal, which prejudices the knowledge of the merits of the case, and it should determine the absolution of the entity Respondent from the claim, given the provisions of Articles 576 paragraph 1 and 577, subsection c) of the Code of Civil Procedure, applicable by virtue of Article 29, paragraph 1, subsection e) of the RJAT.

The Respondent returns to the theme, in its counter-submissions, sustaining the position already expressed in its Reply and for reference thereto.

Whether in request delivered in the file on 28 July 2015, or in its submissions, reproducing the text of such request, the Respondent presents its defense regarding the invoked exception in the following manner.

The Claimant states that in the grounds of the decision dismissing the petition, it is the TCA itself that expressly states that "the petition for equitable review has as its object the stamp duty assessment", sustaining the Claimant that such assessment violates the law, in particular Article 7 paragraph 1 subsection g) of the SDC, Article 8 of the General Tax Code and Article 103 of the Constitution and the principle of legality.

The Claimant considers that the restitution of the tax was a consequence of the illegality of the assessment, being a requirement thereof.

It then recalls the Claimant that the procedure of the petition for equitable review aims at the total or partial annulment of tax acts by initiative of the taxpayer (Article 68, paragraph 1 of the Code of Tax Procedure and Process), having as ground any illegality (Article 70 paragraph 1 and 99 of the Code of Tax Procedure and Process), mechanism which it used to obtain the annulment of the stamp duty assessment act in question, being a prior equitable review petition, necessary to open the contentious avenue for challenging self-assessment acts, provided for in paragraph 1 of Article 131 of the Code of Tax Procedure and Process, citing for this purpose the decision contained in the arbitral decision rendered in Proc. 117/2013-T of CAAD.

It concludes, therefore, stating that the request for an arbitral ruling has as its object a tax assessment act, preceded by the appropriate petition for equitable review, and the invoked material incompetence of the Arbitral Tribunal in that the legality of assessment acts was not considered in the petition for equitable review is without merit.

It must be decided.

1. This can only be done by recognizing the reason that favors the Claimant.

It is unambiguous that:

i) The Claimant appropriately submitted a petition for equitable review of the assessment that it itself made (self-assessment) of the stamp duty of item 17.1, concerning the granting of credit (This is what results from the analysis of the text of the petition);

ii) In that petition it put in question the legality of the stamp duty assessment, for non-application of the exemption to which it feels it is entitled, provided for in Article 7 paragraph 1 subsection g) of the SDC, which was denied to it by the TCA (this is what results from the text of the petition and the decision on its dismissal);

iii) It submitted a request for an arbitral ruling, in a manner that is not challenged by the Respondent TCA.

The arguments of the TCA in defense of the prevalence of the invoked exception appear somewhat contradictory to the position defended in the petition process, nothing indicating that, given what is observed there, it could later come to be put in question that, it not having assessed the legality of the stamp duty assessment, was it closed to the Claimant the present arbitral ruling.

The Tribunal has no doubt that the decision dismissing the petition for equitable review is not included among the acts reviewable in this Arbitral Tribunal, given the provision of Article 2 of the RJAT and Ordinance no. 112-A/2011 of 22 March.

But this was not, or only, what the Claimant did.

It petitioned equitably under subsection f) of paragraph 1 of Article 54 of the General Tax Code, pursuant to Articles 68 et seq of the Code of Tax Procedure and Process and item 17.1.1 of the GSDT, "Of the Stamp Duty Assessment incorrectly paid in the Withholding Tax Declaration – PIT/CIT/Stamp Duty – with number …, in the amount of euros 6,200.00 (six thousand two hundred euros), duly identified with the code …-SD-Financial Operations, a copy of which is attached under the designation (Document no. 1), which it does in the terms and with the grounds that follow." (See text of the petition for equitable review submitted by the Claimant to the Tax Administration Directorate of Lisbon, on 11/04/2014).

See, subsequently, the decision issued by the TCA regarding the identified petition:

"The taxpayer…, comes, pursuant to Articles 68 et seq of the Code of Tax Procedure and Process (CTPP), to submit an Equitable Review Petition of the stamp duty paid in the withholding tax declaration with no. …, in the amount of € 6,200.00, concerning the period of February 2014, in the terms and with the grounds set out in the pleading on fls. 4 to 7 of the file, which are hereby given as fully reproduced (See PA, attached to the file)."

The TCA, at the time, perfectly identified the assessment act in question.

There it considers, in addition to the timeliness of the petition, that this – the petition for equitable review – is the proper means for obtaining the desired ends, pursuant to Articles 68 et seq of the Code of Tax Procedure and Process.

Nothing having been pointed out by the TCA, at that date, regarding the means used, given the desired ends.

Regarding the grounds of the decision dismissing the petition, the TCA concludes that the loan in question cannot benefit from the exemption in question, by virtue of the provision of paragraph 2 of Article 7 of the SDC, but also because the requirements on which the exemption depends, pursuant to subsection g) of paragraph 1 of said Article 7 of the SDC, are not met.

It manifests a concurrent judgment of the legality of the self-assessment of the tax in question.

For which the petition is dismissed.

The sought restitution of the tax would result in a natural consequence of a decision opposite to this one, which did not occur.

For all the foregoing and without further, we understand that the alleged exception should be judged without merit, not being closed by this means the possibility of the Tribunal knowing the merits of the case. There is, therefore, no doubt about the Tribunal's competence for such purpose.

Which would proceed to the assessment of the second exception raised by the Respondent.

This is what we shall do.

1. We now address the "incompetence of the Arbitral Tribunal by the impossibility of deciding based on new arguments not contained in the petition for equitable review."

The Respondent TCA here invokes the provision of paragraph 1 of Article 2 of the RJAT and Ordinance no. 112-A/2011 of 22 March, by virtue of Article 4 of the RJAT, transcribing Jorge Lopes de Sousa[1], to sustain the verification of this dilatory exception.

It subsequently refers to the rule of paragraph 1 of Article 131 of the Code of Tax Procedure and Process, by means of which it has been established that judicial challenges having as their object self-assessment acts are preceded by a necessary prior petition, considering that, in the case at hand, there is no coincidence between the generality of the arguments presented by the Claimant, whether in the petition process or here before the present request for an arbitral ruling.

To conclude, noting that the content of Articles 25 et seq of the arbitral request constitutes novelty, compared to what was being argued in the petition.

Now, it understands that, given that novelty, the Respondent was incapacitated from contesting this additional ground in the equitable phase, reason why it concludes that the powers of cognition of this Tribunal are limited only to the knowledge (and consideration) of the grounds invoked by the Claimant in the petition for equitable review, reason why the referenced dilatory exception that translates into the incompetence of the Tribunal should be deemed as verified, with the necessary legal consequences resulting therefrom.

In its submissions the Respondent defends its position against the merits of the exception, invoking the non-existence of any new facts in the arbitral pleading, compared to the petition submitted by it, corresponding to the one that followed, based on the illegality of the assessment, inasmuch as the operation described benefited from the exemption provided for in Article 7 paragraph 1 subsection g) of the SDC.

And it states that the Respondent fully exercised the contradictory, as results from the reading of Articles 84 et seq of its Reply, nothing obliging the Claimant to confine itself in the arbitral pleading to the mere reproduction of the petition for equitable review, which would violate the procedural requirements established in Articles 10 and 16 of the RJAT and transcribes jurisprudence of the Higher Administrative Court to that effect.

Reason why it concludes, for the manifest lack of merit of the alleged exception.

And the Claimant is correct.

Furthermore, even if it could be recognized, which is not the case, that something would have gone wrong, regarding the submission of the petition for equitable review by the Respondent, no other solution would be open to this Tribunal than to proceed to the effective knowledge of the request for an arbitral ruling.

We therefore transcribe the summary of the Judgment of the Higher Administrative Court, cited by the Claimant in its texts, taken from case no. 0793/14, of 3.06.2015, which reads as follows:

"In the judicial challenge subsequent to the decision of the TCA falling on the petition for equitable review or request for official revision of the tax act, the judicial bodies may and must know of all illegalities of substance affecting the tax act at issue, whether or not these illegalities were raised in the equitable phase of the dispute, imposing on them an increased duty when it comes to questions of official knowledge."

We naturally adhere to this position, safeguarding the scope of its application in arbitration.

Nor does the Respondent TCA have reason here, this second alleged exception not being judged as meritorious.

Before proceeding to the next phase, it is worth noting that the Tribunal cured all other issues raised by the parties throughout the proceedings, at the meeting referred to in Article 18 of the RJAT (see minutes of meeting of 22 October 2015).

V – Sanation

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal personality and capacity and are legitimate.

No irregularities are discerned.

VI - The Facts

1. The following facts are considered proven, with relevance to the assessment of the request:

a). On 13 March 2015, A…, S.A., Claimant, taxpayer no. …, with registered office in Portugal, requested the constitution of an arbitral tribunal and submitted a request for an arbitral ruling, pursuant to the combined provisions of subsection a) of paragraph 1 of Article 2 and subsection a) of paragraph 1 of Article 10 of Decree-Law no. 10/2011 of 20 January RJAT, wherein the TCA is the Respondent;

b). The Claimant formulated a request for annulment regarding the tax assessment act of stamp duty for the year 2014, in the amount of € 6,200.00 (six thousand two hundred euros) (See Doc. no. 1);

c). At issue is the legality of the Stamp Duty assessment incorrectly paid in the Withholding Tax Declaration – PIT/CIT/Stamp Duty – with no. …, in the amount of € 6,200.00 (six thousand two hundred euros), identified with the code … -SD – financial operations (See Doc. no. 1);

d). The Claimant is a joint-stock company governed by Portuguese law, whose principal activity is retail trade in non-specialized establishments, which is subject to the general tax regime under Corporate Income Tax and which adopts a taxation period not coinciding with the calendar year (starting on 1 March and ending on 28 or 29 February), and its share capital is held in 99% by the company B…, S.A. (parent company) (See Doc. no. 2);

e). The Claimant granted, at the request of and for the benefit of the parent company, in 2014, a financing to the company B…, S.A. (parent company), in the amount of € 15,500,000.00 (fifteen million five hundred thousand euros) (See Doc. no. 3), in the following manner:

i). The amount of € 15,500,000.00 was transferred by the Claimant to the parent company on 26 February 2014;

ii). The amount of € 15,500,000.00 was returned by the parent company to the Claimant on 28 February 2014;

iii). The interest rate of the operation was 3.6085%, all as appears from a document signed between the parties in Madrid, on 26 February 2014 (See Doc. no. 3).

f). On this operation, Stamp Duty under item 17.1.1 of the General Stamp Duty Table (GSDT) was assessed in the amount of € 6,200.00;

g). Such loan is considered a financial operation (agreement of the parties) which no one contests, was made available in the bank accounts of the Spanish borrower company on 26 February 2014, having been returned on 28 February 2014;

h). The identified subsection g), of paragraph 1 of Article 7 of the SDC, exempts from tax:

i). Financial operations, for a period not exceeding one year;

ii). Provided they are exclusively intended to cover liquidity shortfalls and

iii). Made for the benefit of a company with which there is a relationship of control or group.

i). The loan was granted for a period of two days, naturally less than one year;

j). The company of Spanish law, B…, SA, holds 99.56% of the share capital of the Claimant (See fact documentally proven and accepted by the parties and included in the testimony of the witnesses);

l). The parent company of the Claimant lived, before this operation and during its performance, a period of financial restructuring (See testimony of the witnesses) as a result of various financial difficulties;

m). The parent company of the Claimant received, on 27 February 2014, precisely the day in between the date on which the loan is granted (26) and its return (28), the sum of € 140,000,000.00, concerning the sale to Bank … in Spain, of 51% of the company Financial A…, of which the parent company was the principal shareholder (fact recognized by the Respondent);

n). From the document from the parent company "Consultation of Account and Bank Balances", appears a balance of € 16,968,685.36, value equivalent to the loan granted (Doc. attached to the file with the request of 1 October 2015);

o). The Claimant frequently had liquidity balances (testimony of the witnesses);

p). The financing remained a point in time support, of short duration, with necessarily rapid processing, without any opposition or minimum obstacle from the administration and officials of the Portuguese company, given the origin of the transfer order.

1. The following facts are not considered proven:

a). Nothing in the file indicates the existence of any relationship between lender and borrower that would allow concluding that the transfer of funds may have occurred in the context of any other corporate relationship;

b). There is no movement whatsoever of the subsidiary in relation to the parent company, regarding, for example, the return of obligations of additional contributions or others, nor is there any trace that the Claimant proceeded to the payment of dividends to the parent company, nor to the payment of debts for which the subsidiary is responsible to the parent company.

VII – Question to be Decided

1. Given what is presented in the proceedings, it is important to note that the disputed question concerns whether the operation described above enjoys or does not enjoy the exemption referred to in subsection g) of paragraph 1 of Article 7 of the SDC.

VIII – The Law

1. The referenced subsection g) of paragraph 1 of Article 7 of the SDC has the following wording:

"g) Financial operations, including their respective interest, for a period not exceeding one year, provided they are exclusively intended to cover liquidity shortfalls and performed by venture capital companies (VCC) in favor of companies in which they hold investments, as well as those performed by other companies in favor of companies dominated by them or in companies in which they hold a participation of at least 10% of the capital with voting rights or whose acquisition value is not less than (euro) 5,000,000, according to the last agreed balance sheet and, as well as, made for the benefit of a company with which there is a relationship of control or group;"

Because, equally referenced by the parties, although they also make different interpretations of it, the provision of paragraph 2 of that same Article 7 of the SDC is also relevant, which provides the following:

"2 - The provision of subsections g) and h) of paragraph 1 does not apply when any of the parties does not have its seat or effective management in the national territory, with the exception of situations where the creditor has its seat or effective management in another Member State of the European Union or in a State with which there is an agreement in force to avoid double taxation on income and capital agreed with Portugal, in which case the right to exemption subsists, except if the creditor has previously carried out the financing provided for in subsections g) and h) of paragraph 1 through operations carried out with credit institutions or financial companies seated abroad or with branches or permanent establishments abroad of credit institutions or financial companies seated in the national territory."

This is the basis of analysis that will allow us to conclude whether or not we are faced with an operation that meets the requirements for granting stamp duty exemption.

1. However, we cannot obviously arrive at the analysis of the contours of any exemption rule without first concluding that the operation in question falls within the scope of application of the tax, and whether, given the elements of connection with third fiscal systems, the operation in question will or will not be taxed in Portugal.

It would be strange that, in the logical and systematic reasoning that would lead to the assessment of the exemption provided for in Article 7 paragraph 1, subsection g) of the SDC, it did not first have to establish the necessary path that passes through the analysis of the rules of incidence of stamp duty, including the rules of territoriality, as only situations subject to tax can come to benefit from the application of any exemption rule.

Now, in the terms of Article 1 of the SDC, we ascertain that:

"1 - Stamp duty applies to all the acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including free transfers of property.

Among such acts or contracts appear those referred to in item 17.1 of the GSDT:

"For the use of credit, in the form of funds, merchandise and other values, by virtue of the granting of credit for any reason except in the cases referred to in item 17.2, including the transfer of credits, factoring and treasury operations when they involve any type of financing to the transferee, member or debtor, always considering the extension of the contract period as a new granting of credit - on the respective value, depending on the period:"

There is no doubt that the loan in question, designated a "treasury operation" (what remains to be verified), constitutes a credit operation, with the Claimant on the side of the creditor entity, and its parent company invested in the position of debtor, by means of a contract signed by the parties, in which the terms and conditions thereof are set out, namely, the amount, duration of the contract, terms of repayment of the loan, applicable interest rate, etc. (it being noted now that in this contractual context the purpose of the loan is omitted).

1. Nor is there any doubt that the loan in question, because resulting from the conclusion of a contract in which a credit operation is embodied, is subject to the payment of stamp duty, in the terms and conditions provided for in item 17.1 of the General Stamp Duty Table (GSDT).

2. Given that the contract in question comprises elements of connection with another legal-fiscal system, it is then important to ascertain whether, in accordance with the principle of territoriality, the operation could be considered as taxed in Portugal or not.

We know the following:

• Creditor – company with registered office in Portugal;
• Debtor – company with registered office in Spain;
• Contract – concluded in Spain;
• Origin of the funds on the basis of which the contract is granted - Portugal;
• Place of use of credit – Spain;
• Place of making credit available - Portugal.

Let us now see.

Article 4, paragraph 1 of the SDC provides:

"1 - Without prejudice to the provisions of this Code and the General Table in a different sense, stamp duty applies to all the facts referred to in Article 1 occurring in the national territory."

We already know that this is an operation referred to in Article 1 of the SDC – acts or contracts – credit granting operation (See Item 17.1 of the GSDT).

And can we consider that this is an operation that occurred in the national territory?

It is therefore important to analyze, as the Respondent does, if and when the tax obligation in question – the credit operation – is considered constituted.

Now, the tax obligation is considered constituted:

"g) In credit operations, at the moment when they are realized or, if credit is used in the form of current account, bank overdraft or any other means in which the period is not determined nor determinable, on the last day of each month;" (Article 5, subsection g) of the SDC)

The credit operation in question is considered constituted at the moment it was realized, that is, at the moment the credit was granted.

And if credit was granted by an entity with registered office in Portugal, the operation is considered to be located here, and being located in Portugal, because the creditor is in the national territory, taxation will occur here and not in any other legal/fiscal system.

The element of connection here relevant concerns the performance of the credit granting operation. And, in the case at hand, it was performed in Portugal.

Moreover, if the tax fact, referenced in paragraph 1 of Article 4 of the SDC, were the use of credit:

"… – but which it is not, as we have seen -, then the legislator would not have needed to include in paragraph 2 and its subsection b) credit operations granted by entities domiciled in the national territory, since in this case the use occurs in this territory and, then, the situation would be (in that logic) already contemplated in paragraph 1. The argument drawn from the cited item no. 17.1 does not hold, given that it is the Code that defines the rules of incidence, including exemptions, and the birth of the tax obligation and the consequent tax fact, as is seen from the provisions we have cited. From said item 17.1 only can, and should, be drawn the rule that tax is only due at the moment and to the extent of the use of credit granted. We can, to conclude, say that the subjection to stamp duty occurs at the moment in which the credit was granted, although under the suspensive condition of its actual use, that is, when and to the extent that the granted credit is used. It is concluded, therefore, that, with the granting of credit occurring in the national territory – tax fact -, the situation envisaged is covered by the cited paragraph 1 of Article 4 and, consequently, subject to stamp duty."[2]

Thus, in what we agree, it does not assume relevance, in the case at hand, the fact that the credit in question was used by a company located outside the national territory.

What does not place the operation in question under cover of any type of taxation that might exist in Spain for credit used there, regardless of its origin (which we do not know).

We do know that it does not constitute an element of connection, relevant for the purpose of determining the location of the operation and consequently the system competent for its taxation, the place where the contract was concluded.

It is not by the fact that the contract was not concluded in Portugal that the connection of the operation in question with the Portuguese territory is removed.

It is not the place of conclusion of the loan contract that determines the place of granting of credit, nor is it the use of credit, by not having occurred in the national territory, that removes taxation.

In an operation unequivocally subject to tax in Portugal, it would be extremely easy for the parties, aiming to avoid its taxation in the national territory, to have the contract signed in any third country.

Nothing prevents this from being done, but one cannot attribute the effect sought by the Claimant to it.

Although recognizing pertinence, in abstracto, to the position manifested by Sara Liberal Antunes, in "Incidence of Stamp Duty on transfer of credits: normative inconsistencies and limits of territoriality, UCP, p. 28", namely in the part transcribed by the Claimant in Article 29([3]) of its initial request, we cannot forget that the analysis concerns "transfers of credit" and not "granting of credits".

On the other hand, it seems to us insurmountable the position defended by António Lopes Laires and Jorge Belchior Laires, in Stamp Duty Code, Annotated and Commented, 2000 Alda Editors, p. 39, when they very well defend that the tax fact referred to in paragraph 1 of Article 4 of the SDC is the granting of credit and not the use of credit.

Thus, they do not constitute elements that allow removing the evident connection with the Portuguese fiscal legal system, the fact that the user of credit is located outside the national territory and the contract was also concluded outside the national territory.

1. Thus prevails, as the determining element of the connection with the Portuguese fiscal system, the fact that the credit is considered to have been granted by a company located in Portugal, considering the operation to be located here and consequently subject to tax here.

This, despite the fact that the entity that, in the first instance, bore the burden of the tax was the non-resident entity, even knowing that the parties agreed to reverse this situation, with the Claimant ultimately bearing such burden, resulting therefrom, equally, clarified aspects related to its procedural legitimacy.

We proceed, therefore, to the analysis of whether or not the requirements necessary for recognition of the exemption provided for in subsection g) of paragraph 1 of Article 7 of the SDC are met, and if they are, whether the situation of the case fits or does not fit the context of paragraph 2 of Article 7 of the SDC.

1. We have already seen the manner in which the Claimant argues that the necessary requirements for recognition of the exemption are met (See infra no. 28).

For its part, the TCA here Respondent manifests its opposition to the recognition of this exemption, in the manner that constitutes below nos. 42 to 49.

It falls to the Tribunal to ascertain who is correct.

1. Let us take up the text of Article 7, paragraph 1, subsection g) of the SDC.

Exempt from stamp duty are:

"g) Financial operations, including their respective interest, for a period not exceeding one year, provided they are exclusively intended to cover liquidity shortfalls and performed by venture capital companies (VCC) in favor of companies in which they hold investments, as well as those performed by other companies in favor of companies dominated by them or in companies in which they hold a participation of at least 10% of the capital with voting rights or whose acquisition value is not less than (euro) 5,000,000, according to the last agreed balance sheet and, as well as, made for the benefit of a company with which there is a relationship of control or group;"

The facts given as proven and the agreement of the parties regarding this aspect allows, naturally, to conclude that we are faced with financial operations performed for a period not exceeding one year.

1. No one questions, in reality, what financial operations are. But there is no doubt that the operation here in question would always be included there.

The identified subsection g), of paragraph 1 of Article 7 of the SDC, exempts from tax:

i). Financial operations, for a period not exceeding one year;

ii). Provided they are exclusively intended to cover liquidity shortfalls and

iii). Made for the benefit of a company with which there is a relationship of control or group.

The loan was granted for a period of two days, naturally less than one year, reason why the first requirement provided for in law for verification of the requirements of the exemption provided for in subsection g), of paragraph 1 of Article 7 of the SDC is deemed met;

The company of Spanish law, B…, possesses 99.56% of the share capital of the Claimant (See fact documentally proven and accepted by the parties and included in the testimony of the witnesses), thus fulfilling the third of the requirements necessary for verification of the requirements of the exemption provided for in subsection g), of paragraph 1 of Article 7 of the SDC;

1. There is, however, no agreement between the parties regarding the other requirements for cumulative verification that appear in the identified subsection g) of paragraph 1 of Article 7 of the SDC, namely:

i). Financial operations exclusively intended to cover liquidity shortfalls.

There thus remains to be resolved, in addition to the question of the application or not of paragraph 2 of Article 7 of the SDC which can only be analyzed after concluding that the conditions imposed by paragraph 1 are met.

If they are met, then yes, for granting of the exemption, the provision of paragraph 2 of Article 7 of the SDC must be taken into account. Otherwise, this will evidently not be necessary.

Given this, it falls to decide.

1. Constitute requirements for verification of the exemption provided for in subsection g), of paragraph 1 of Article 7 of the SDC, as stated by the Respondent, the following:

• the loan occurred for a period less than one year;
• it was granted in the context of intra-group financing in which company B…, S.A holds a participation of 99.56% of the capital of the Claimant;
• it met the pressing need of company B…, S.A to cover liquidity shortfalls.

Now, the identified subsection g), of paragraph 1 of Article 7 of the SDC, as has been referred to several times, exempts from tax:

a). Financial operations, for a period not exceeding one year;

b). Provided they are exclusively intended to cover liquidity shortfalls and

c). Made for the benefit of a company with which there is a relationship of control or group.

It happens that the loan in question, naturally considered a financial operation which no one contests, was made available in the bank accounts of the Spanish borrower company on 26 February 2014, having been returned on 28 February 2014.

Facts contractually provided for, documentally proven and accepted by the parties.

And two days is less than one year.

And, as we have seen, the first requirement is satisfied.

And the third is satisfied.

Because, it equally results from the file, and is not challenged by the Respondent, that there is a relationship of control or group between the Claimant and its parent company B… SA.

Although of inverted control. The lending company is the one held by the borrowing company.

But there is, always, a group relationship.

The company of Spanish law, B… SA, possesses 99.56% of the share capital of the Claimant.

Thus two of the requirements necessary for verification of the requirements of the exemption provided for in subsection g), of paragraph 1 of Article 7 of the SDC are fulfilled, as we have seen.

1. Now, the crux of the matter, as results from the discussion between the parties, concerns, naturally, whether the financial operation in question, a loan for two days, was or was not intended to cover liquidity shortfalls and, if affirmative, whether it was an exclusive purpose.

The Claimant says yes.

The Respondent says no.

It falls to the Tribunal to decide who is correct.

1. The Claimant seeks to assess the purpose of the loan based on reasons related to its duration, of very short duration, which would constitute, by itself, strong evidence that liquidity shortfalls were being remedied, all the more so emphasizing the fact that the loan was made within the group.

It appeals to the testimony of the witnesses examined, stating that one of them qualified the situation as if it were an "overnight" transaction.

The Claimant considers that the fact that nothing appears in the contract regarding the purpose of the loan cannot be drawn to conclude that it cannot be considered as intended to remedy liquidity shortfalls.

It even thinks that if the purpose were different, not saying which, that is what should appear in the contract.

It draws from the document from the parent company "Consultation of Account and Bank Balances", from which appears a balance of € 16,968,685.36, that the amount made available - € 15,500,000.00, was intended, precisely, given the equivalence of values – to remedy that specific shortfall.

The Claimant attributes relevance to the testimony of the witnesses, regarding the restructuring of the parent company's debt and to press communications to evidence the liquidity difficulties of the parent company, in contrast with the liquidity excess of the Claimant.

For its part, the Respondent understands that the loan made does not intend to remedy any liquidity shortfalls of the parent company, nor naturally mentions what it would have been intended for (which would not be its responsibility).

1. The Respondent invokes that the Claimant never alleged either the reasons that in fact sustained said liquidity shortfall, nor did it prove that the transfer of € 15,500,000.00 was due exclusively to the covering of those shortfalls.

And it continues the Respondent's argumentation, invoking that from the loan contract concluded between the parties, nothing appears regarding the reason that led to the operation in question, or whether it had origin in commercial and/or corporate relationships or from any other cause distinct from any of these.

The Respondent makes an analysis of the documentation attached to the file by the Claimant and after downgrading Docs. nos. 3, 4, 5 and 6, because they are mere copies of press items, considers that from the remaining documents nothing appears that can unequivocally demonstrate that it is a loan intended to remedy liquidity shortfalls.

Curiously, the Respondent recognizes that the parent company of the Claimant received, on 27 February 2014, precisely the day in between the date on which the loan is granted (26) and its return (28), the sum of € 140,000,000.00, concerning the sale to Bank … in Spain, of 51% of the company Financial A…, of which the parent company was the principal shareholder.

1. In the present case, it is settled case law that the facts constituting the right to recognition of the stamp duty exemption of Item 17.1 of the GSDT fall to the Claimant, who invokes such recognition.

And let us recall, it was the Claimant itself that following the loan in question, assessed and paid the tax, charged it to the parent company, which accepted to assume its burden.

This situation, if it was reversed, was because the Claimant's illegitimacy to enable the continuation of the tax claim process was at issue.

The Tribunal notes that there is no reference anywhere in the proceedings that the transfer of funds took place in the context of any other corporate relationship.

There is no movement whatsoever of the subsidiary in relation to the parent company, regarding, for example, the return of obligations of additional contributions or others, because the financial flows had a return.

Nor is there any trace that the Claimant proceeded to the payment of dividends to the parent company (advanced, because paid before the close of the year), because if so were the case, another fiscal framework would be at issue, obliging substantial withholdings at source, which would always merit another treatment by the Portuguese tax authorities.

Nor could it be a matter of the payment of debts for which the subsidiary is responsible to the parent company, because there is a return of financial flows in the opposite direction.

Then, what will the 15 million euros have been used for by the parent company?

To pay debts to third parties, to pay its suppliers, employees, to amortize bank debt, to purchase shareholdings, etc.

This last hypothesis does not appear credible, because the operations on shareholdings were performed, but precisely in the opposite direction (disposition).

And then one could ask why the parent company would not have, on its own, paid and honored its hypothetical commitments? And why did it have to resort to the Portuguese company?

Because its subsidiary possesses liquidity excess, because the cost of the operation was reduced (rate of 3.6085%), because the transfer was rapid and immediate, because it was for a very short period, because it was waiting to receive the € 140 million from the sale of a subsidiary, but which had not yet been received, which only occurred the following day, because it would be more time-consuming and complicated to resort to banks or its shareholders when a financial restructuring of the group was being processed?

Why?

Be it for whatever reason, what is a fact is that it remained a point in time support, of short duration, with necessarily rapid processing, without any opposition or minimum obstacle placed by the administration and officials of the Portuguese company, given the origin of the transfer order.

If it were not, among other hypotheses, to remedy liquidity shortfalls, what would the loan thus obtained be used for?

For investment, for payment of debts to third parties, for purchase of property or other assets?

There is no concrete indication of such destinations, nor does the movement – restitution – appear to be the most adequate for such purpose.

End of year operation?

Indeed, the fiscal year of the parent company (and consequently the Claimant) ended on 28 February and the loan was taken on 26 and returned on 28, before the close.

1. But there seems to be no doubt that, it being nothing different from this, it will have been the liquidity shortfalls of the parent company – despite never being invoked – that will have led to the need to make the request to the Claimant.

And up to here the Tribunal can go.

1. Except that the law goes further, because the law requires that the operation in question be intended exclusively to remedy liquidity shortfalls.

And that that was the exclusive purpose of the financing, the Claimant did not succeed, as was incumbent upon it, in proving.

1. Reason why its claim is dismissed.

DECISION

1. In accordance with the above, it is decided:

2. To consider the request for an arbitral ruling submitted by the Claimant without merit, as not proven.

3. To maintain in the legal system the Stamp Duty assessment act, paid in the Withholding Tax Declaration – PIT/CIT/Stamp Duty – with no. …, relating to the year 2014, in the amount of € 6,200.00 (six thousand two hundred euros), and consequently absolve the Respondent from the claim.

Value of the Proceedings

1. The value of the proceedings is fixed at € 6,200.00 (six thousand two hundred euros) in accordance with Article 97-A, paragraph 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subsections a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

1. Costs charged to the Claimant in accordance with Article 22, paragraph 2 of the RJAT, Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached thereto, which are fixed in the amount of € 612.00.

Let it be notified.

Lisbon, 6 January 2016

The Arbitrator

(Jorge Carita)

[1] Jorge Lopes de Sousa, commentary to the Legal Regime of Tax Arbitration, Guide to Tax Arbitration, Almedina, 2013, pp 105-108.

[2] António Campos Laires and Jorge Belchior Laires, in Stamp Duty Code, Annotated and Commented, 2000 Alda Editors, page 39, cited in Article 30 of the Reply of the TCA.

[3] "In these circumstances, (…) it seems to us permissible to understand that in cases where the creditor is a resident entity, financial or not, and the user is a non-resident entity, Stamp Duty is not due for the uses of credit, under the rules of territoriality of Stamp Duty. Starting from the territorial basis of the tax, the subjection of the uses of credit is conditioned by the degree of connection that the same situation presents with the Portuguese territory, being that connection determined by the place where the use of credit occurs. Thus, we understand that in cases where the use of credit is carried out outside the national territory by non-resident entities, then Stamp Duty would not be due. It seems to us permissible that whoever bears the tax has with the State a political and economic bond that justifies its interest in the pursuit of the ends that the State develops with the tax revenues." (Sara Liberal Abrantes, "Incidence of Stamp Duty on transfer of credits: normative inconsistencies and limits of territoriality", UCP, p.28)