Process: 182/2019-T

Date: September 4, 2019

Tax Type: Outros

Source: Original CAAD Decision

Summary

This Tax Arbitration case (182/2019-T) concerns the Banking Sector Contribution (CSB) imposed on an EU bank branch operating in Portugal. The German bank A... challenged the 2015 CSB assessment through its Portuguese branch, arguing the contribution violated constitutional principles including non-retroactivity, parliamentary reservation of law, tax equality, and EU law principles of non-discrimination and freedom of establishment. The claimant contended that Law No. 7-A/2016 retroactively applied the CSB to EU branches for 2015 tax facts, that essential tax elements were improperly delegated to governmental regulation rather than parliamentary law, and that branches were taxed on gross liabilities while Portuguese institutions could deduct equity capital. The Portuguese Tax Authority raised a jurisdictional exception, arguing that the CSB qualifies as a financial contribution rather than a tax, and therefore falls outside the arbitral tribunal's competence under Article 2 of the RJAT. The Authority further defended the contribution's legality, stating the 2016 contribution referenced accounts approved that same year (no retroactivity), that Law No. 55-A/2010 established essential elements satisfying constitutional requirements, and that the liability calculation methodology did not discriminate against EU branches. This case addresses the critical threshold question of whether arbitral tribunals have jurisdiction over financial contributions distinct from taxes, with significant implications for administrative dispute resolution in Portuguese tax law and the scope of taxpayer recourse to arbitration for non-traditional fiscal levies.

Full Decision

TAX ARBITRATION JURISPRUDENCE

Case No. 182/2019-T

Date of Decision: 2019-09-04

Other Category

Value of Claim: € 1,360,575.64

Subject Matter: CSB - Banking Sector Contribution - Financial Contribution. Lack of Jurisdiction of Arbitral Tribunal.

ARBITRAL DECISION

The arbitral tribunal agrees as follows:

I – Report

  1. A..., with headquarters in ..., ..., ..., Germany, on behalf of B... – BRANCH IN PORTUGAL, TIN ..., with headquarters in ..., ..., ..., Lisbon, hereby requests the constitution of an arbitral tribunal, pursuant to Articles 2, paragraph 1, subparagraph a), and 10 of Decree-Law No. 10/2011, of 20 January, to assess the legality of the rejection of the gracious complaint lodged against the self-assessment of the banking sector contribution for the year 2015, further requesting the condemnation of the Tax Authority to payment of compensatory interest.

The claim is substantiated as follows.

The banking sector contribution, as amended by Law No. 7-A/2016, of 31 March 2016, which made the contribution applicable to branches of banking institutions resident in the European Union, is unconstitutional by violation of the principle of non-retroactivity of tax law insofar as it applies to tax facts fully verified and consolidated in 2015.

Moreover, the essential elements of the contribution were created in violation of the principle of legality, in the aspect of parliamentary reservation of law, since the rate and the taxable base were determined by a mere act of Government of a regulatory nature - Regulation No. 165-A/2016, of 14 June.

The banking sector contribution is also illegal by violation of the principle of tax equality, in the aspect of the principle of equivalence, since the revenue is allocated to the Portuguese Resolution Fund, which finances exclusively measures for the resolution of credit institutions resident in Portugal or entities subject to resolution measures by the Bank of Portugal, which is not the case of branches resident in the European Union.

Furthermore, the application of the contribution to a branch of a banking institution resident in another Member State of the European Union violates the principle of prohibition of discrimination and the freedom of establishment, since the rules of incidence of the contribution provide for the taxation of branches on their "gross" liabilities, without any deduction, whereas in relation to entities with headquarters in Portuguese territory, taxation applies to their "net" liabilities, allowing deductions, namely those related to their own capital.

Moreover, the banking sector contribution does not fit into any of the types provided for in Directive 2014/59/EU, which established a harmonized regime for the recovery and resolution of credit institutions and established legal criteria for fixing and calculating contributions, which means that the Portuguese legal regime creates a sui generis contribution, not provided for under the Directive, creating situations of international double taxation and violation of free competition.

The decision rejecting the gracious complaint also suffers from lack of substantiation, insofar as it merely invoked that it is not the responsibility of the Administration to pronounce on issues of constitutionality or conformity with European Union law, ignoring the arguments advanced regarding the illegality and unconstitutionality of the self-assessment.

The Tax Authority, in its response, raises the exception of lack of jurisdiction of the arbitral tribunal to hear the claim, since according to Article 2 of Regulation No. 112-A/2011, of 22 March, the Tax Administration committed itself to the jurisdiction of arbitral tribunals functioning in the CAAD with regard to the assessment of claims relating to taxes whose administration is entrusted to them that are referred to in paragraph 1 of Article 2 of Decree-Law No. 10/2011, of 20 January, with the exception of claims listed in the various subparagraphs of that article, not covering taxes that should be qualified as contributions and not taxes.

In its objection, the Administration argues that the basis of incidence is calculated by reference to the annual average of the final balances of each month, corresponding to those in the accounts approved in the same year in which the contribution is due, so that in relation to 2016, the contribution is due by reference to the accounts approved in that same year, with no violation of the alleged principle of non-retroactivity of tax law occurring.

On the other hand, it was Law No. 55-A/2010 that determined the essential elements of the contribution, namely with regard to subjective and objective incidence and applicable rates, leaving to Regulation No. 121/2011 the elaboration of the relevant concepts for determining the basis of incidence, so compliance was given to what is established in Article 103, paragraph 2, of the Constitution, with no alleged violation of the parliamentary reservation of law occurring.

It is also important to note that the objective that presided over the creation of the banking sector contribution was to create a tax with the dual purpose of strengthening the tax effort made by the financial sector and of more effectively mitigating the systemic risks associated with it, thus preventing taxpayers from bearing the losses and charges generated by the banking sector, with no reason to consider the violation of the principle of equivalence, understood as a means of preventing differentiations foreign to cost or benefit being introduced into commutative taxes.

Furthermore, the calculation of the basis of incidence of the banking sector contribution does not take as its starting point the total value of liabilities deducted from the value of own capital - as one seeks to make believe - but rather the value of liabilities deducted from the value of elements that, although forming an integral part of the liabilities shown in the balance sheet, have characteristics of own capital, thus refuting the idea that there is an expansion of the taxable base of branches.

And, in these terms, no treatment unfavorable to branches of credit institutions with headquarters in Member States of the European Union capable of violating the freedom of establishment enshrined in Article 49 of the Treaty on the Functioning of the European Union is detected in the norms constituting the legal regime of the banking sector contribution.

Nor does the alleged violation of the duty to provide grounds occur, which according to current understanding is satisfied with a succinct and contextual substantiation that allows a normal recipient to understand the cognitive and evaluative itinerary of the decision, and the Claimant, as is demonstrated, perfectly understood the meaning and scope of the assessment on which the request for arbitral pronouncement bears.

  1. Following the proceedings, the Claimant was called upon to submit a hearing on the matter of exception, and submitted, in summary, as follows.

Under subparagraph a) of paragraph 1 of Article 2 of the Legal Regime of Tax Arbitration (RJAT), the jurisdiction of arbitral tribunals includes the assessment of "declarations of illegality of acts of self-assessment of taxes, withholding at source and payment on account", stemming from Article 3, paragraph 2, of the General Tax Law that "taxes comprise taxes, including customs and excise taxes, and other tax species created by law, namely rates and other financial contributions in favor of public entities". Further according to Article 4, paragraph 3, of this Law, "special contributions that are based on the obtaining by the taxpayer of benefits or increases in value of his assets as a result of public works or the creation or expansion of public services or the special wear of public assets caused by the exercise of an activity are considered taxes".

It is true that Article 4, paragraph 1, of the RJAT referred the binding of the Tax Administration to the jurisdiction of arbitral tribunals to a regulation of the members of Government responsible for the areas of finance and justice, which should establish, in particular, the type and maximum value of disputes covered (Regulation No. 112-A/2011, of 22 March) and Article 2 of the Regulation states that services and organisms bind themselves "to the jurisdiction of arbitral tribunals functioning in the CAAD that have as their object the assessment of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of Article 2 of Decree-Law No. 10/2011, of 20 January". However, all elements of systematic, teleological and historical interpretation point to the fact that arbitral tribunals have full jurisdiction to assess the legality of financial contributions administered by the Tax Authority.

It must be concluded in these terms that Article 2 of Regulation No. 112-A/2011 should be interpreted in the sense that the scope of arbitral jurisdiction covers the assessment of claims relating to taxes whose administration is entrusted to the Tax Authority, with the exception of the cases listed in the subparagraphs of that Article 2, thus also covering claims relating to "contributions" administered by it, as is the case with the banking sector contribution. The interpretation that restricts the scope of arbitral jurisdiction to claims relating to taxes would be unconstitutional by violation of the principle of equality, combined with the principle of effective judicial protection, enshrined in Articles 13 and 20 of the Constitution.

  1. The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the Tax and Customs Authority in the regulatory terms.

Pursuant to subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

The parties were timely and duly notified of this appointment and did not express a wish to refuse it, pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.

Thus, in accordance with what is provided in subparagraph c) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 29 May 2019.

The arbitral tribunal was properly constituted and is materially competent in light of what is provided in Articles 2, paragraph 1, subparagraph a), and 30, paragraph 1, of Decree-Law No. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are represented (Articles 4 and 10, paragraph 2, of the same act and Article 1 of Regulation No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no exceptions were raised.

It is appropriate to assess and decide.

II – Substantiation

Matter of Fact

  1. The facts relevant to the decision of the case that may be considered as established are the following:

A) The Claimant is a German credit institution with headquarters and effective management in Germany and carried out its activity in Portugal in 2015 through the Branch C... – Branch in Portugal, previously designated D... – Branch in Portugal, with headquarters in ..., Germany, having changed its name in 2016 to B... – Branch in Portugal;

B) In compliance with the instructions for completing Declaration Model 26, issued by the Tax Authority, following the amendment introduced to the banking sector contribution regime by Law No. 7-A/2016, of 30 March, the Claimant self-assessed the banking sector contribution for the liabilities of the year 2015 in the total amount of € 1,360,575.64;

C) The Claimant made payment of the contribution due;

D) On 28 June 2018, the Claimant lodged a gracious complaint against the self-assessment of the banking sector contribution;

E) By order of the assistant director of the Finance Directorate of Lisbon, of 13 December 2018, made with delegation of authority, the gracious complaint was rejected.

The Tribunal formed its conviction as to the proven facts based on the documents attached to the petition and the administrative file attached by the Tax Authority.

Matter of Law

Lack of Jurisdiction of the Arbitral Tribunal

  1. The Tax Authority raised the exception of lack of jurisdiction of the arbitral tribunal to hear the present claim, having as its object the banking sector contribution, basing itself on the interpretive meaning to be attributed to Article 2 of Regulation No. 112/2011, of 22 March - which establishes the binding of the Tax Authority to the jurisdiction of the CAAD - noting that, according to that provision, the object of the binding is limited to the assessment of claims relating to taxes, with the necessary exclusion of financial contributions.

In the opposite sense, the Claimant argues that a systematic, teleological and historical interpretation of the cited Article 2 of the binding Regulation points to the fact that arbitral tribunals have material jurisdiction to assess the financial contributions administered by the Tax Authority, and appeals to the provisions of Article 3, paragraph 2, of the General Tax Law, which encompasses in the legal concept of "taxes" taxes and other tax species created by law, namely rates and other financial contributions in favor of public entities, and the subsequent Article 4, paragraph 3, which integrates special contributions with certain characteristics in the category of taxes.

There is also no uniformity on this matter in arbitral jurisprudence.

In the award rendered in Case No. 312/2015-T, concerning the extraordinary contribution on the energy sector - subsequently followed by the arbitral decisions rendered in Cases Nos. 139/2017-T and 437/2017-T, these concerning the banking sector contribution – it was held that "if any sense can be attributed to the literal-systematic interpretation of the provisions it is that the reference to 'taxes' instead of 'tributes' in Article 2 of Regulation No. 112-A/2011, followed by the express reference to paragraph 1 of Article 2 of the RJAT and the express enumeration of a set of exceptions, evidences that the author of the Regulation did not have the restrictive intention regarding the scope of binding and, if it were so, would have made express allusion to that restriction in the range of subparagraphs that contemplate the exceptions". And even if we consider the banking sector contribution inserted in the legal category of "contributions" it is in no way distinguished, in its nature and structure, from that of "taxes", since the Tax Administration acts as if they were taxes".

On the other hand, the award rendered in Case No. 347/2017-T, considers that the verbal content of Article 2 of the binding Regulation, through the specific reference to taxes, being an irremovable element of all interpretation, precludes any extensive interpretation that would permit framing in that concept any other figure (rate or contribution) that belongs to the broader category of taxes, and such an understanding, having no minimal support in the letter of the law, would empty the restrictive statement and the delimiting intention of the Regulation of content.

This is therefore the question that must first be analyzed.

The contentious jurisdiction of arbitral tribunals in matters of tax arbitration, as results from Article 2 of the Legal Regime of Tax Arbitration (RJAT), comprises the assessment of claims that seek the "declaration of illegality of acts of taxation of taxes, self-assessment, withholding at source and payment on account" and the "declaration of illegality of acts of determination of taxable matter when it does not give rise to the taxation of any tax, of acts of determination of taxable matter and of acts of fixing patrimonial values".

Article 4, paragraph 1, of the RJAT further makes the binding of the Tax Administration to the jurisdiction of arbitral tribunals dependent on a regulation of the members of Government responsible for the areas of finance and justice, which should establish, in particular, the type and maximum value of disputes covered.

And the instrument that, in execution of that provision, defines the scope and terms of the binding of the Tax Authority to the jurisdiction of arbitral tribunals functioning in the CAAD is Regulation No. 112-A/2011, of 22 March, which in its paragraph 2, under the heading "Object of binding", provides as follows:

The services and organisms referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals functioning in the CAAD that have as their object the assessment of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of Article 2 of Decree-Law No. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative remedy in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts of determination of taxable matter and acts of determination of taxable base, both by indirect methods, including the decision of the revision procedure;

c) Claims relating to import duties and other indirect taxes on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or proceedings to be carried out by another Member State within the framework of administrative cooperation in customs matters.

The reference to services and organisms that bound themselves to arbitral jurisdiction was made to the General Directorate of Taxes and the General Directorate of Customs and Excise Taxes, which were subsequently abolished, being succeeded by the Tax and Customs Authority.

Regulation No. 112-A/2011, also called the binding Regulation, thus establishes a second level of delimitation of claims that may be subject to arbitral jurisdiction. Being a mere regulation of execution, the Regulation could not go beyond what was established in law as to the scope of material jurisdiction of arbitral tribunals, but could establish restrictions as to the scope of binding to tax arbitration, namely by reference to the type of disputes and the value of the case.

In that sense, the binding Regulation has a purpose similar to that which results from Article 187, paragraph 2, of the Code of Administrative Court Procedure for administrative arbitration. According to that provision, from the moment each ministry assumes, by regulation, its binding to the jurisdiction of arbitration centers, it becomes bound to submit to an arbitral decision, with regard to the types of disputes within the scope of the regulation. It is an instrument placed at the free disposal of ministries, which are free to assume, by regulation, their willingness to submit to arbitration by institutionalized centers regarding certain types of disputes and within certain limits, and this option of the Administration that confers on interested parties the potestative right to approach an arbitration center to settle disputes that may be submitted to arbitral tribunals.

Also in this regard, the award rendered in Case No. 48/2012-T, subsequently followed by several other decisions, stated the following:

"The jurisdiction of arbitral tribunals functioning in the CAAD is, first and foremost, limited to the matters indicated in Article 2, paragraph 1, of [the RJAT].

In a second line, the jurisdiction of arbitral tribunals functioning in the CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction, concretized in Regulation No. 112-A/2011, of 22 March, since Article 4 of the RJAT establishes that 'the binding of the tax administration to the jurisdiction of tribunals constituted in terms of this law depends on a regulation of the members of Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered'.

In light of this second limitation of the jurisdiction of arbitral tribunals functioning in the CAAD, the resolution of the question of jurisdiction depends essentially on the terms of this binding, since, even if one is dealing with a situation that can be framed in that Article 2 of the RJAT, if it is not covered by the binding, the possibility of the dispute being jurisdictionally decided by this arbitral tribunal is precluded".

In the case at hand, the binding Regulation, apparently, establishes two limitations: it refers to claims "relating to taxes", from among those that fall within the generic jurisdiction of arbitral tribunals, and to taxes whose administration is entrusted to the Tax Authority. It must be concluded, in these terms, that the binding refers to any of the claims mentioned in Article 2, paragraph 1, of the RJAT that concern taxes - with the exclusion of other taxes - and to taxes that are managed by the Tax Authority - which leads to the exclusion of those administered by the Autonomous Regions or entrusted to other public entities.

The Claimant alleges, in line with the arbitral decisions rendered in Cases Nos. 312/2015-T, 139/2017-T and 437/2017-T, that a systematic, teleological and historical interpretation of Article 2 of Regulation No. 112-A/2011 reveals that there was no intention to restrict the scope of jurisdiction defined in Article 2 of the RJAT, in which reference is made to the declaration of illegality of acts of taxation of taxes. And if there were the purpose to reduce the binding of the Tax Authority to taxes, that restriction would be included in the list of exceptions in the various subparagraphs of Article 2. The absence of an express reference to financial contributions is due only to the fact that, at the time of publication of the Regulation, the Tax Administration had not yet been assigned any tax with those characteristics. And, finally, there is no logical reason for this restriction of the jurisdiction of arbitral tribunals when what is at issue is the limitation of the scope of binding through the holding of powers to administer the taxes.

As cannot be denied - reverting now to the analysis of the case - the letter of the law is the starting point of interpretation, to which falls a negative function intended to eliminate those meanings that have no support or correspondence with the verbal statement, and a positive function that is translated into choosing from among the possible meanings of the norm that which corresponds to the natural meaning of the verbal expressions used, and in particular to its technical legal meaning.

However, in determining the meaning and scope of legal texts, other interpretive factors cannot be excluded. The rational or teleological element of interpretation consists of determining the end sought by the legislator, due attention being paid to the circumstances in which the norm was elaborated and the relative weight of the interests that the norm aims to regulate. The systematic element comprises consideration of other provisions forming the complex of norms of the institute in which the norm being interpreted is integrated and that regulate the same matter, as well as consideration of legal provisions that regulate parallel normative problems or institutes. And it aims above all to determine the systematic place that the norm has in the overall legal system and its correspondence with the unity of the legal system. The historical element involves all materials related to the history of the provision, including the evolutionary history of the institute, the sources of law and the preparatory works (on all these aspects, BAPTISTA MACHADO, Introduction to Law and to the Legitimizing Discourse, Coimbra, 1993, pp. 181-185).

Based on all these interpretive elements, the interpreter can arrive at an extensive interpretation of the text of law when the verbal formula adopted says less than what was intended to be said and it becomes necessary to give it a scope consistent with the legislative thinking.

In the case, the introduction into the Portuguese legal system of arbitration in tax matters, as an alternative form of jurisdictional resolution of conflicts in the fiscal domain, was implemented by Decree-Law No. 10/2011, of 20 January, in the use of a legislative authorization granted by Article 124 of Law No. 3-B/2010, of 28 April, which authorized the Government "to legislate in order to institute arbitration as an alternative form of jurisdictional resolution of conflicts in tax matters" (paragraph 1) and admitted the tax arbitration process as an "alternative procedural means to the process of judicial challenge and the action for the recognition of a right or legitimate interest in tax matters" (paragraph 2).

Decree-Law No. 10/2011 (RJAT) concretized the mentioned legislative authorization with a scope more restricted than originally provided, not having contemplated jurisdiction for the action for the recognition of a right or legitimate interest in tax matters and limited tax arbitration to the matters listed in its Article 2, excluding several of the jurisdictions of tax tribunals referred to in Article 97, paragraph 1, of the Code of Tax Procedure and Process that are exercised through the process of judicial challenge.

Furthermore – as seen - the binding of the Tax Administration to arbitral tribunals was made conditional on the binding regulation which was intended to determine, in particular the type and maximum value of disputes covered.

First, it is important to bear in mind that the reference to a regulatory instrument of the definition of the scope of the binding of the Administration to tax arbitration was precisely intended to allow the government departments with administrative competences in the management of the fiscal system to assess the viability of the legal regime, taking into account the innovative character of the resort to arbitration in tax matters and the absence of any experimental data on the effectiveness of the system.

On the other hand, a second level of limitation of the scope of tax arbitration by way of regulation is justified by reasons of legislative policy and nothing prevented the binding Regulation from establishing more restrictive criteria than those legally provided, either as to the list of claims that could be submitted to arbitral tribunals, or as to the procedural value of disputes that could be submitted to arbitration or to the composition of the arbitral tribunal.

In this context, it is not particularly questionable that the entity with regulatory competence could choose to restrict the binding to the claims referred to in Article 2, paragraph 1, of the RJAT that were only incidental to taxes, and leave aside questions related to rates and contributions which, moreover, could generate a greater degree of conflictuality and uncertainty as to legal qualification and require greater specialization through the specificity of the issues that could arise.

The Claimant insists that there is no reason to interpret restrictively the reference to taxes contained in the preamble of Article 2 of the binding Regulation and nothing prevents including in that concept financial contributions as a species that they are of taxes.

Such an interpretation has, however, no correspondence whatsoever in the letter of the law, and, on the other hand, it is the General Tax Law itself that, in classifying taxes, clearly distinguishes between taxes and other tax species created by law, including in them rates and financial contributions (Article 3).

Furthermore, the interpretation of tax law is governed by the hermeneutic criteria resulting from Article 9 of the Civil Code and "whenever, in tax norms, terms proper to other branches of law are used, they must be interpreted in the same sense as that in which they have there, unless otherwise directly results from law" (Article 11, paragraphs 1 and 2, of the General Tax Law). It would scarcely be comprehensible that tax laws should be interpreted, without any particularism, according to the interpretation criteria enshrined in civil law, especially when "terms proper to other branches of law" were at issue, and it would no longer be necessary to apply this principle when terms proper to tax law are at issue.

It is abundantly clear that if the legislator resorts to the broad concept of taxes in the legal norm that defines the jurisdiction of arbitral tribunals (Article 2, paragraph 1, of the RJAT) and uses the more restricted concept of taxes in the binding Regulation (preamble to Article 2), this can only mean that the verbal expression has, in either case, the technical legal sense that corresponds to it and, accordingly, the conclusion cannot be drawn that the law and the regulatory instrument intend to refer to the same legal reality when they refer to taxes or to taxes.

The Claimant further argues with the historical and systematic element of interpretation, saying that the absence of reference to financial contributions in Article 2 of the binding Regulation is due to the circumstance that there was no tax with those characteristics that was being managed by the Tax Administration, and, if it were intended to restrict the scope of jurisdiction of arbitral tribunals, the solution would be to include that restriction in the list of exceptions in the various subparagraphs of Article 2.

It must be said, as to the first point, that financial contributions in favor of public entities, as a third tax category, on a par with taxes and rates, was introduced with the 1997 constitutional review and the General Tax Law already made mention of these contributions as one of the species of taxes. And the purported non-existence of contributions that were being administered by the Tax Authority could not constitute grounds for excluding contributions from the provision of Article 2 of the Regulation, since one of the limits to binding was precisely the assessment of claims relating to taxes whose administration is entrusted to the Tax Authority. That is, if the entity with regulatory competence intended to extend arbitration to financial contributions, there was no obstacle to it doing so even if some of those taxes were not administered by the Tax Authority, since, in that case, the exclusion would be maintained due to the non-verification of one of the requirements of the binding.

The so-called systematic element of interpretation, in the sense that the Claimant attributes to it, also has no raison d'être.

The reference to claims relating to taxes, in the preamble of Article 2 of the Regulation, does not constitute an exception, but the very material scope of tax arbitration. If one were to refer to the exceptional regime of the various subparagraphs of that article the reference to claims relating to taxes, the provision would be left without useful prescriptive content and the binding regime would be delimited only negatively.

On the other hand, the various subparagraphs of that article, by excepting from the binding regime the situations found listed therein, have a meaning and scope that is perfectly comprehensible. Subparagraph a) aims to identify situations in which, in matters of self-assessment, tax substitution and payments on account, there is place for administrative challenge and has the unequivocal meaning of making necessary the prior administrative challenge of the tax act as a condition of access to the judicial remedy. It is not precisely a matter of contentious jurisdiction but of a condition of procedural viability of the action. Subparagraph b) concerns claims relating to acts of determination in taxable matter and taxable matter, by indirect methods, and which is justified in being excluded from arbitration since they are preparatory acts of assessment. The exclusion of arbitration from the questions mentioned in subparagraphs c) and d) are explained by reasons of a practical order that are related to the very nature of the matters at issue.

In the systematic interpretation of law, the interpreter must give prevalence to the meaning that permits ensuring material concordance with other provisions of the system, and, in the meaningful context of the norm at issue, that concordance will have to be established in relation to what is provided in Article 2, paragraph 1, of the RJAT, which defines the scope of jurisdiction of tribunals by reference to taxes, and Article 3, paragraph 2, of the General Tax Law, which includes in the broad concept of taxes taxes, rates and financial contributions. Having used the author of the binding regulation a concept with a precise legal meaning to delimit the scope of binding (claims relating to taxes), it would make no sense, even in an interpretation based on the systematic element, to attribute to that linguistic statement a meaning not consistent with the unity of the system.

And it cannot be ignored - as has already been stated – that the literal element constitutes the limit of interpretation and conditions the further activity of the interpreter, so that one can only proceed to a broad interpretation if the provision does not contain an unequivocal literal sense that fits with the purpose intended to be achieved (on these last aspects, KARL LARENZ, Methodology of Legal Science, Calouste Gulbenkian Foundation, Lisbon, 7th edition, pp. 457-458).

It remains to consider that in the sense of lack of jurisdiction of arbitral tribunals to assess claims relating to financial contributions is positioned the doctrine: SÉRGIO VASQUES/CARLA CASTELO TRINDADE, "The material scope of tax arbitration", "Cadernos de Justiça Tributária", No. 00 (April/June 2013), pp. 24-25; CARLA CASTELO TRINDADE, Annotated Legal Regime of Tax Arbitration, Coimbra, 2016, p. 78; Serena Cabrita Neto/CARLA CASTELO TRINDADE, Tax litigation, vol. II, Coimbra, 2017, pp. 439 et seq.

Legal Nature of the Banking Sector Contribution

  1. The banking sector contribution (CBS) was recently characterized by the award of the Superior Administrative Court of 19 June 2019 (Case No. 02340/13), with developed substantiation, as a financial contribution.

The CSB was created by Article 141 of Law No. 55-A/2010, of 31 December (Budget Act for 2011), subsequently amended by Law No. 7-A/2016, of 30 March, as an extraordinary contribution, having as passive subjects credit institutions with principal headquarters and effective management located in Portuguese territory, branches in Portugal of credit institutions that do not have their principal headquarters and effective management in Portuguese territory and branches in Portugal of credit institutions with principal headquarters and effective management outside the European Union (Article 2). Its objective scope of incidence is the liabilities ascertained and approved by the passive subjects within the conditionality provided in subparagraph a) of Article 3 (as amended by Law No. 7-A/2016) and the notional value of derivative financial instruments outside the balance sheet ascertained by the passive subjects (subparagraph b).

Assessment is carried out by the passive subject itself, through an official model declaration approved by regulation of the member of Government responsible for the area of finance, which must be sent annually by electronic data transmission, by the last day of June (Article 5) and paid by the last day of the deadline established for sending the declaration, with payment being made in accordance with paragraph 1 of Article 40 of the General Tax Law (Article 6).

To the assessment, collection and payment of the contribution, the provisions of the General Tax Law and the Code of Tax Procedure and Process are subsidiarily applied (Article 7).

The basis of incidence, the applicable rates, as well as the rules for assessment, collection and payment of the contribution were regulated by Regulation No. 121/2011, of 30 March.

It is also important to note that the CSB constitutes revenue of the Resolution Fund, created by the amendment introduced by Decree-Law No. 31-A/2012, of 10 February, to the Regime of Credit Institutions and Financial Companies (Article 153-F, subparagraph a)) and defined as a legal entity of public law, endowed with administrative and financial autonomy, functioning under the Bank of Portugal (Article 153-B). The Fund's purpose is to provide financial support for the application of resolution measures adopted by the Bank of Portugal and to perform all other functions conferred on it by law in the context of the implementation of such measures (Article 153-C) and it compulsorily includes, among other entities, credit institutions with headquarters in Portugal (Article 153-D).

The Budget Report for 2011 itself explains the genesis of the banking sector contribution in terms sufficiently clear as to the objectives intended to be achieved.

It states there (p. 73):

"The State Budget Proposal for 2011 also proceeds to the creation of a contribution on the banking sector in line with those already introduced in other Member States, with the purpose of bringing the tax burden borne by the financial sector closer to that which burdens the rest of the economy and to have it contribute more intensely to the effort of consolidation of public accounts and prevention of systemic risks, also protecting in this way the sector's workers and social security mechanisms.

The contribution thus applies to credit institutions with principal headquarters and effective management located in Portuguese territory, to branches of credit institutions that do not have their principal headquarters and effective management in Portuguese territory and to branches, installed in Portuguese territory, of credit institutions with principal headquarters and effective management in third countries".

In light of the legal regime briefly described, the CSB is based on a quid pro quo of a group nature, insofar as it constitutes a public price to be paid by the set of regulated persons to the respective regulatory entity or agency.

It does not amount to a rate stricto sensu, since it does not apply to a concrete and individualized service that the Administration provides to the respective passive subjects, nor is it characterized as a tax, since the respective unilaterality is not verified: it does not have as its exclusive purpose the raising of revenue (it is not intended that "the participating institutions contribute to the expenses of the community, in fulfillment of any duty of solidarity"), rather it is intended that the financial sector contribute to the coverage of the systemic risk that is inherent to its activity.

And its nature is not precluded by the circumstance that the revenue from the CSB is allocated to the Resolution Fund, since the Fund's purpose is to provide financial support for the application of measures by the Bank of Portugal and aims at the prevention of systemic risks in the banking sector. This same objective is noted in the preliminary note to Regulation No. 121/201, where it is stated that the essential elements of the CSB are defined "in terms similar to those of contributions already introduced by other Member States of the European Union, with the dual purpose of strengthening the tax effort made by the financial sector and of more effectively mitigating the systemic risks associated with it".

As concluded in the cited award of the Superior Administrative Court of 19 June 2019, the legislative motivation contained in the instruments that regulated the contribution for the banking sector and the Resolution Fund legitimates the inference that the contribution aimed, first and foremost, to mitigate the consequences resulting from public interventions in the financial sector, given the situation of financial crisis then triggered in that same sector, being reducible to an instrument of support in the prevention of the inherent risks of the system, not being intended to fill generic financing needs of the State.

It is, in these terms, a tax that, affecting a homogeneous group of recipients and aiming to prevent risks associated with this group, is effectuated in the compensation of possible public intervention in the resolution of financial difficulties of entities in that sector, thus assuming the legal nature of a financial contribution.

And in that same sense the award rendered in Case No. 347/2017-T pronounced itself.

  1. The constitutional recognition of financial contributions resulted from the amendment introduced to Article 165, paragraph 1, subparagraph i), of the Fundamental Law by the 1997 constitutional review, which autonomized financial contributions in favor of public entities as a third category of taxes.

The General Tax Law, approved in 1998, came to include among the various types of taxes, taxes and other species created by law, namely rates and financial contributions in favor of public entities, defining, in general, the requirements of these various types of taxes in the subsequent Article 4.

The doctrine has characterized financial contributions as a tertium genus of fiscal revenue, which may be qualified as collective rates, insofar as they aim to compensate for services rendered by a public entity to a certain group or category of persons. As GOMES CANOTILHO/VITAL MOREIRA state, "the essential difference between taxes and these bilateral contributions is that the former aim to finance general public expenditure and cannot, in principle, be allocated to certain public services or certain expenditures, whereas the latter, like rates in the strict sense, aim to finance certain public services and certain public expenditures (responsible for the public services of which the contributions are the counterpart), to which they are allocated, and cannot, therefore, be diverted to other services or expenditures" (Constitution of the Portuguese Republic Annotated, vol. I, 4th edition, Coimbra, p. 1095). In this sense, contributions are taxes with a paracommutative structure, directed at compensation for services presumptively caused or benefited by taxpayers, distinguishing themselves from rates which are strictly commutative taxes directed at compensation for actual services (SÉRGIO VASQUES, Manual of Tax Law, Coimbra, 2015, p. 287).

On the other hand, the Constitutional Court has also recognized the existence of these different legal-tax categories, namely for the purpose of drawing consequences as to legislative jurisdiction, admitting that rates and other contributions of a bilateral character are only subject to parliamentary reservation as to their general regime, but not as to their individual creation and as to their concrete regime, being able therefore to be created by governmental legislative instrument and regulated by way of regulation provided that the legal framework is observed (see, among others, the award No. 365/2008).

In any case, there is no doubt that financial contributions are distinguished from taxes, which are characterized as being a unilateral monetary payment, coercively imposed by the State or a public entity, aimed at obtaining revenue for the satisfaction of public needs and purposes.

  1. In conclusion:

By virtue of the provisions of Articles 2 and 4 of the RJAT and Article 2 of the binding Regulation, the material jurisdiction of arbitral tribunals constituted within the CAAD comprises only claims relating to taxes that are administered by the Tax Authority.

Since the present arbitral claim has as its object the banking sector contribution which has the legal nature of a financial contribution, the arbitral tribunal is incompetent ratione materiae to assess the dispute.

  1. In response to the exception of lack of jurisdiction of the arbitral tribunal, the Claimant also alleges that the interpretation of the norm of Article 2 of Regulation No. 112-A/2011 in the sense that the binding of the Tax Administration to arbitral jurisdiction is restricted to claims relating to taxes is unconstitutional by violation of the principle of equality, combined with the principle of effective judicial protection.

The violation of the principle of equality amounts to unequal treatment of a group of recipients of the norm in relation to another group of recipients, notwithstanding the absence of any difference justifying the unequal treatment. The central problem translates into the choice and justification of the distinctive criterion that is to serve as the basis for comparing the situations to be dealt with by law. And, in this specific aspect, the principle of equality identifies itself with the prohibition of arbitrariness, that is, the legislator is forbidden to introduce discriminations between taxpayers that are devoid of rational foundation or for which an obvious objective foundation is not found or where no minimum coherence is detected between the objectives pursued and the foreseeable results (see awards of the Constitutional Court No. 306/2010 and No. 695/2014, and, in the doctrine, SÉRGIO VASQUES, Manual of Tax Law, Coimbra, 2015, pp. 290-291; REIS NOVAIS, Constitutional Principles Structuring the Portuguese Republic, Coimbra, 2004, p. 111).

Arbitrary differentiation is, in short, that which cannot be substantiated in light of an intelligible or rationally apprehensible criterion, congruent with constitutionally relevant values (award of the Constitutional Court No. 166/2010).

Now, in the case under analysis, the legislator referred the binding of the Tax Administration to the jurisdiction of arbitral tribunals to a regulatory instrument, namely for the purpose of establishing the type and maximum value of disputes that would be covered by arbitration. And it was thus in this instrument that the competent governmental entities could define the object of binding, nothing preventing them from restricting the list of claims that could be submitted to arbitral tribunals or establishing limits as to the procedural value of disputes that could be submitted to them.

That was precisely the purpose of the reference of the binding regime to a regulation, allowing entities with administrative competences in the management of the fiscal system to assess the viability of a tax arbitration system, which presented an innovative character and on which there was no prior experience.

The limitation established in the resort to arbitration in tax matters is thus based on considerations of practicability and legislative policy which, by themselves, constitute sufficient material ground for restricting the scope of binding to claims relating to taxes.

On the other hand, the principle of effective judicial protection, understood as a right of access to courts is not postponed by the limitation of resort to arbitration in relation to disputes involving financial contributions, since nothing prevents interested parties from resorting to tax tribunals, as is indeed the case in relation to all other types of disputes that are excluded from tax arbitration in light of the provisions of Article 2, paragraph 1, of the RJAT.

There is thus no violation of the principle of equality and the principle of effective judicial protection.

III – Decision

For these reasons, it is decided to declare the absolute incompetence of the tribunal by reason of the matter and, consequently, to absolve the Respondent of the instance.

Value of the Cause

The Claimant indicated as the value of the cause the amount of € 1,360,575.64, which was not contested by the Respondent and corresponds to the value of the assessment that was intended to be contested, and thus the value of the cause is fixed at that amount.

Costs

Pursuant to Articles 12, paragraph 2, and 24, paragraph 4, of the RJAT, and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 18,360.00, to be borne by the Claimant.

Notify.

Lisbon, 4 September 2019

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitrator Member

Ricardo Rodrigues Pereira

The Arbitrator Member

Eduardo Paz Ferreira

Frequently Asked Questions

Automatically Created

What is the Banking Sector Contribution (CSB) and who is subject to it in Portugal?
The Banking Sector Contribution (CSB) is a special levy imposed on credit institutions operating in Portugal, designed to strengthen tax collection from the financial sector and mitigate systemic banking risks. Originally established by Law No. 55-A/2010 and modified by Law No. 7-A/2016, it applies to both Portuguese banking institutions and branches of EU credit institutions operating in Portugal. The contribution is calculated based on average annual liabilities and funds the Portuguese Resolution Fund, which finances resolution measures for Portuguese credit institutions. Revenue is allocated specifically to prevent taxpayers from bearing losses generated by the banking sector.
Why was the arbitral tribunal declared incompetent to rule on the Banking Sector Contribution case?
The arbitral tribunal's competence was challenged because the CSB is classified as a financial contribution rather than a traditional tax. Under Article 2 of the Legal Regime of Tax Arbitration (RJAT) and Regulation No. 112-A/2011, the Tax Administration committed to arbitral jurisdiction only for taxes administered by them, not for contributions. The Portuguese legal framework distinguishes between taxes (impostos) under Article 3(2) of the General Tax Law and special financial contributions. The Tax Authority argued this sui generis contribution falls outside the scope of arbitrable matters, as arbitral tribunals lack jurisdiction over contributions that don't qualify as taxes stricto sensu under the RJAT's enumerated categories.
Does the Banking Sector Contribution violate the principle of fiscal non-retroactivity for EU bank branches?
The claimant argued the CSB violated fiscal non-retroactivity because Law No. 7-A/2016 applied the contribution to EU bank branches for tax facts consolidated in 2015, before the law's enactment in March 2016. However, the Tax Authority countered that no retroactivity occurred because the 2016 contribution referenced the annual average of monthly account balances approved in 2016 itself, not prior years. The contribution base is calculated by reference to accounts approved in the same year the contribution is due, meaning the 2016 contribution applied prospectively to 2016 accounts, not retroactively to 2015. This temporal alignment argument aimed to demonstrate compliance with constitutional prohibitions against retroactive taxation.
Can EU bank branches challenge the CSB on grounds of discrimination and freedom of establishment under EU law?
EU bank branches can challenge the CSB on discrimination and freedom of establishment grounds under Articles 49 and 54 TFEU. The claimant argued that branches are taxed on gross liabilities without deductions, while Portuguese institutions deduct equity capital, creating unfavorable treatment that restricts establishment rights. Additionally, the contribution allegedly creates double taxation situations not harmonized under Directive 2014/59/EU on bank recovery and resolution. However, the Tax Authority contested this, arguing the liability calculation doesn't start from total liabilities minus equity but rather deducts items with equity-like characteristics for all entities, ensuring equal treatment. The substantive merits of these EU law arguments depend on whether the tribunal has jurisdiction to hear the case.
What is the difference between a financial contribution and a tax for purposes of arbitral tribunal jurisdiction in Portugal?
For arbitral tribunal jurisdiction in Portugal, the distinction between financial contributions and taxes is critical. Under Article 3(2) of the General Tax Law, taxes include impostos and other tax species created by law, including rates and financial contributions to public entities. Article 4(3) specifically addresses special contributions based on taxpayer benefits from public works or services. However, Article 2(1)(a) of the RJAT grants arbitral jurisdiction over 'taxes' and related assessment acts. The Tax Authority interprets this narrowly, excluding financial contributions that don't fit traditional tax categories. This classification determines whether taxpayers can access arbitration or must pursue administrative and judicial review through regular courts, fundamentally affecting dispute resolution options for non-traditional fiscal levies.