Summary
Full Decision
ARBITRAL DECISION
Agree in arbitral tribunal
I – Report
1. A..., S.A. (A...), with the collective person identification number..., with registered office at..., n.º..., ..., in Lisbon, hereby requests the constitution of an arbitral tribunal, under the terms of Articles 2, No. 1, paragraph a), and 10 of Decree-Law No. 10/2011, of 20 January, to assess the legality of the tax assessment acts relating to stamp duty and compensatory interest assessments, by reference to the year 2015, in the total amount of € 225,237.07.
The request is grounded in the following terms.
A... is a credit institution engaged in banking and financial activities, as well as the provision of related services, being as such subject to the General Regime of Credit Institutions and Financial Companies.
In the course of its activities, A... issues debit and credit bank cards to its customers so that they may carry out electronic payment operations in commercial establishments equipped with an automatic payment terminal.
In the context of electronic payment operations using bank cards, the Applicant, in the year 2015, charged financial institutions that issued bank cards commissions corresponding to the "multilateral interchange fee", in the amount of € 387,966.44.
Also in the context of its activities, A... charges commissions to financial institutions arising from the provision of services and investment activities (dealing) in financial instruments with issuing entities, notably in the chapter of offering in public offering and reception and transmission of orders.
In the year 2015, A... charged such commissions to institutions of B..., headquartered in France, and C..., headquartered in Ireland, in the amount of € 4,769,965.00.
For the charging of commissions corresponding to the "multilateral interchange fee" and investment activities (dealing), A... did not proceed to the assessment of Stamp Tax considering it was covered by the exemption provided in Article 7, No. 1, paragraph e), of the Stamp Tax Code (CIS).
However, the Tax Authority, in the course of an inspection action directed at the Applicant, determined corrections in respect of stamp tax that focused on the tax treatment attributed by A... to the commissions relating to the "multilateral interchange fee" and the "dealing" activity and resulted in the assessment acts now challenged, in the total amount of € 225,237.07.
It so happens that commissions charged by credit institutions, throughout the various versions that were attributed to the norm of Article 7, No. 1, paragraph e), of the CIS, have always been covered by the tax exemption and the limitation established by Law No. 7-A/2016, of 30 March, through the addition of a No. 7 to that Article 6, despite its alleged "interpretative" nature, cannot fail to be considered a violation of the principle of the constitutional prohibition on retroactive application of tax law.
In fact, the enactment contained in that norm, in stating that "the provision of paragraph e) of No. 1 applies only to guarantees and financial operations directly intended for the granting of credit, within the scope of activity exercised by the institutions and entities referred to in that paragraph", does not correspond to an interpretation that could have already been accepted in light of the previous versions of the provision, whereby the referred provision of No. 7 of Article 6 has an innovative nature and was intended to aggravate tax collection in relation to prior fiscal years.
The Tax Authority, in its response, maintains that the interest, commissions charged and guarantees provided to which the norm of Article 7, No. 1, paragraph e) refers, are correlated with the granting of credit, and therefore are only covered by the exemption provided therein when it is interest, commissions or guarantees arising from credit granted.
To that end, the addition of No. 7 to Article 7 of the CIS, through Law No. 7-A/2016, of 30 March, in restricting the exemption to guarantees and financial operations directly intended for the granting of credit, merely proceeded to make explicit a prior norm, and an innovative nature cannot be attributed to it seeing as it opted for one of the possible interpretations of the pre-existing legal regime.
Therefore, retroactivity cannot be attributed to the referred provision of No. 7 to Article 7 to which the tax legislator resorted as an interpretative norm to clarify ambiguous solutions.
In any case, the Tax Authority could not disregard, on the grounds of its purported unconstitutionality, the interpretative nature of No. 7 of Article 7 of the CIS, which was attributed to it by Article 154 of the 2016 State Budget Law, whereby compensatory interest would never be due, in the absence of any responsibility or error on the part of the Administration.
2. Following the proceedings, the meeting referred to in Article 18 of the RJAT was dispensed with and the case was ordered to be sent for optional written submissions within successive periods of ten days.
The parties did not submit submissions.
3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority in accordance with the regulations.
Under the terms provided in paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the task within the applicable period.
The parties were duly and timely notified of that appointment and manifested no intention to refuse it, under the combined terms of Article 11, No. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Ethics Code.
Thus, in conformity with what is provided in paragraph c) of No. 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 10 July 2018.
The arbitral tribunal was regularly constituted and is materially competent, in light of what is provided in Articles 2, No. 1, paragraph a), and 30, No. 1, of Decree-Law No. 10/2011, of 20 January.
The parties possess legal standing and capacity, are legitimate and are represented (Articles 4 and 10, No. 2, of the same act and 1 of Ordinance No. 112-A/2011, of 22 March).
The proceedings are not affected by nullities and no exceptions have been invoked.
It is incumbent to assess and decide.
II - Grounds
Factual Matters
4. The facts relevant for the decision of the case that may be considered established are the following.
a) A... is a credit institution engaged in banking and financial activities, as well as the provision of related services;
b) In the course of its activities, A... issues debit and credit bank cards to its customers, who are then able to carry out, with them, electronic payment operations in commercial establishments equipped with an automatic payment terminal;
c) As an issuer of bank cards, A..., in the year 2015, charged financial institutions commissions corresponding to the "multilateral interchange fee", in the amount of € 387,966.44;
d) In the context of its activities, A... charges commissions to financial institutions arising from the provision of services and investment activities (dealing);
e) In the year 2015, A... charged such commissions to institutions B..., headquartered in France, and C..., headquartered in Ireland, in the amount of € 4,769,965.00;
f) A... did not proceed to the assessment of Stamp Tax for the charging of the commissions referred to in the preceding paragraphs c) and e) considering that they were covered by the exemption provided in Article 7, No. 1, paragraph e), of the Stamp Tax Code;
g) Under the service order No. OI2017..., of 5 April 2017, the Tax Inspection Services carried out an external inspection action of general scope, to ascertain the tax situation of A... and to investigate compliance with tax obligations inherent in the exercise of its activities, with reference to the tax period 2015;
h) By letter No...., of 17 November 2017, A... was notified to comment on the Draft Tax Inspection Report, in which it was proposed to make corrections in the area of Stamp Tax affecting the commissions relating to the "multilateral interchange fee" and the "dealing" activity;
i) By letter No. 4257, of 17 December 2017, A... was notified of the Tax Inspection Report which found stamp tax shortfall in the amount of € 15,518.65, relating to the commissions relating to the "multilateral interchange fee" and in the amount of € 190,798.60, relating to the commissions relating to the "dealing" activity;
j) A... was notified of the Stamp Tax assessment No. 2017..., in the amount of € 206,317.25, and of the compensatory interest assessments Nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., in the total amount of € 18,919.92;
l) A... proceeded to pay the tax due.
The Tribunal formed its conviction regarding the established facts on the basis of the documents attached to the petition and the administrative proceedings filed by the Tax Authority with its response.
Legal Matters
5. The central issue in debate consists in determining whether the commissions charged by the Applicant are covered by the tax exemption regime referred to in Article 7, No. 1, paragraph e), of the CIS, which exempts from tax "interest and commissions charged, guarantees provided and, as well, the use of credit granted by credit institutions, financial companies and financial institutions".
The Tax Authority counters that this norm only refers to interest and commissions connected with credit granting operations in which credit and financial institutions participate and that this clarification came to be made by No. 7 of Article 7, added by Law No. 7-A/2016, of 30 March, to which an interpretative norm nature was attributed (Article 154).
It is this issue that it is important to clarify and which justifies preliminarily a brief review of the legislative evolution of the provision.
In its original wording, the Stamp Tax Code, in its Article 6, provided for tax exemption for the granting of credit and the charging of commissions by credit institutions, as follows:
1 - The following are also exempt from tax:
(...)
e) Interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and object fulfil the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in Member States of the European Union, or in any State fulfilling the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997;
f) Commissions charged by credit institutions to other institutions of the same nature or entities whose form and object fulfil the types of credit institutions provided for in Community legislation, domiciled in Member States of the European Union, or in any State fulfilling the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997;
(…)
Law No. 30-C/2000, of 29 December, having maintained in essence the exemption regime provided for in those provisions, introduced a No. 2 in which it stipulated that "[t]he provision of paragraphs e) and f) applies only to financial operations directly intended for the granting of credit, within the scope of activity exercised by the institutions and entities referred to in those paragraphs", thus restricting the objective scope of the exemption referred to in paragraph f), which came to apply only to financial operations directly intended for the granting of credit.
This No. 2 subsequently came to be eliminated by Law No. 32-B/2002, of 30 December, which also reformulated paragraph e) of No. 1 of Article 6 so as to include in that single provision the exemptions previously provided for in paragraphs e) and f), and came to have the following wording:
e) Interest and commissions charged and, as well, the use of credit granted by credit institutions and financial companies to venture capital companies, as well as to companies or entities whose form and object fulfil the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in Member States of the European Union, or in any State, except those domiciled in territories with privileged tax regime to be defined by ordinance of the Minister of Finance.
With Decree-Law No. 287/2003, of 12 November, the regime of that paragraph e) of No. 1 of Article 6 came to be set out in paragraph e) of No. 1 of Article 7 and Law No. 107-B/2003, of 31 December, amended the wording of that paragraph, extending the scope of application of the exemption to "guarantees provided".
The provision has remained unchanged since then, currently bearing the following wording:
e) Interest and commissions charged, guarantees provided and, as well, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and object fulfil the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in Member States of the European Union or in any State, except those domiciled in territories with privileged tax regime, to be defined by ordinance of the Minister of Finance.
Meanwhile, Law No. 7-A/2016, of 30 March, in its Article 152, added a No. 7 to Article 7 of the CIS, which prescribes: "[t]he provision of paragraph e) of No. 1 applies only to guarantees and financial operations directly intended for the granting of credit, within the scope of activity exercised by the institutions and entities referred to in that paragraph". On the other hand, Article 154 of this Law attributed to this No. 7 the nature of an interpretative norm.
6. The historical evolution of Article 7, No. 1, paragraph e), of the CIS shows that only in its original version, which related the exemption to credit granting and the charging of commissions by credit institutions and, subsequently, with the addition of a No. 2 to that article by Law No. 30-C/2000, which restricted the scope of the exemption to financial operations directly intended for the granting of credit, did the applicable scope of the exemption become circumscribed to credit operations (objective incidence) and credit institutions (subjective incidence).
With the consolidation of the verbal formula "interest and commissions charged and, as well, the use of credit granted by credit institutions and financial companies", resulting from the new wording given by Law No. 32-B/2002, and the concomitant elimination of No. 2, it became clear that the norm aims at two distinct purposes: on one hand, the charging of interest and commissions, and on the other, the granting of credit.
And it is in that sense that the historical element of interpretation also points. It cannot fail to be noted that until the reformulation carried out by Law No. 32-B/2002, the law distinctly contemplated interest charged and the use of credit (paragraph e) and commissions charged by credit institutions (paragraph f). The assimilation of these two types of financial operations into a single legal provision cannot have the effect of mischaracterizing the scope of incidence of the exemption, coming to associate interest and commissions with the very granting of credit.
In this context, the norm of No. 7 of Article 7 of the CIS, added by Law No. 7-A/2016, insofar as it restricts the scope of the exemption to operations directly intended for granting within the scope of activity developed by financial institutions and companies and other financial institutions, is of an innovative nature, coming to delimit the material scope of the exemption provided for in the said norm of Article 7, No. 1, paragraph e), in terms that did not correspond to the literal sense and the historical circumstances in which the norm was drafted.
Interpretative Norm and the Principle of the Prohibition of Retroactivity of Tax Law
7. In the 1997 revision, the Constitution came to provide, in its Article 103, No. 3, that no one can be obliged to pay taxes that are retroactive in nature, enshrining a principle of the prohibition of retroactivity of taxes that was already a consequence of the principle of protection of confidence inscribed in the principle of the Rule of Law (Article 2).
Consequently, as has been emphasized by constitutional case law, the legislator cannot create taxes of such nature or introduce into existing taxes modifications that, with retroactive effects, aggravate tax situations already defined, in particular the amount due by way of a certain tax and previously defined in light of the verification of relevant facts in light of the law previously applicable (Decision No. 644/2017).
The aforementioned constitutional prohibition has implications with respect to interpretative laws in the tax field.
As results from the provision of Article 13, No. 1, of the Civil Code, the interpretative law is considered integrated in the interpreted law, which means that its effects retroact to the date of entry into force of the old law, with everything happening as if it had been published on the date when the interpreted law was published.
The interpretative law thus comes to have, in those terms, a formal effect of retroactivity: there is retroactivity because the law becomes applicable to facts and situations prior to it, and the retroactivity is merely formal insofar as the law limits itself to enshrining one of the possible interpretations of the prior law with which the interested parties could and should count, and which is not susceptible of violating safe and legitimately based expectations. Differently, if the new law intends to apply to facts and legal situations previously regulated by certain law, then the latter is modified, violating expectations regarding its continuity, and such law, insofar as it innovates relative to the prior law, will be substantial or materially retroactive (cf. Baptista Machado, Introduction to Law and to Legitimizing Discourse, Coimbra, 1983, pp. 246-247).
As was explained in the decision of the Constitutional Court No. 267/2017, "from the perspective of protecting the confidence of the recipients of the law, what is relevant is that the formally retroactive interpretative law merely declares pre-existing law; whereas the substantively retroactive interpretative law, by modifying the pre-existing law, constitutes new law. This is what happens when the legislator expressly declares or qualifies as "interpretative" a certain provision of a new law, even when that provision is in reality innovative. A law that modifies pre-existing law – that is to say, that constitutes new law – under the guise of an "interpretative law" will necessarily violate any prohibition of retroactive laws valid for its material scope of application".
It is the situation in this case.
The tax administration services invoked the interpretative character of the provision of No. 7 of Article 7 of the CIS, to exclude the exemption provided in paragraph e) of No. 1 of that article in relation to financial operations not directly intended for the granting of credit.
This normative solution, resulting from the combination of Nos. 1, paragraph e), and 7 of Article 7 of the CIS, as a consequence of the addition of this No. 7 by Article 154 of Law No. 7-A/2016, is innovative and aggravates the legal position of the taxpayer who is thus prevented from benefiting from the tax exemption regime. And, having been applied to the fiscal year 2015, and therefore to a fiscal year prior to the entry into force of the Law, this solution becomes substantially retroactive and, in that measure, incompatible with the prohibition of the imposition of retroactive taxes.
It is understood, in these terms, that it is unconstitutional, by violation of the principle of the prohibition of retroactivity of taxes enshrined in Article 103, No. 3, of the Constitution, the normative interpretation of the combined provisions of Articles 7, No. 1, paragraph e), and No. 7 of the Stamp Tax Code and Article 154 of Law No. 7-A/2016, of 30 March, according to which the exemption provided in that paragraph e) of No. 1 applies only to guarantees and financial operations directly intended for the granting of credit, within the scope of activity exercised by the institutions and entities referred to therein.
This same judgment of unconstitutionality was confirmed by the decision of the Constitutional Court No. 644/2017, on review of summary decision, and adopted, in a similar situation, by the arbitral decisions rendered in Cases Nos. 348/2016, 303/2017, 352/2017 and 441/2017.
In necessary consequence of the refusal to apply the normative interpretation deemed unconstitutional, the tax assessment acts relating to stamp tax, as well as the assessments of compensatory interest referred to in this request for arbitral decision, are illegal.
Compensatory Interest
8. The Applicant, having proceeded to the voluntary payment of the assessed stamp tax, hereby requests the refund of the amounts unduly paid, plus compensatory interest, in application of the provisions of Articles 43 of the General Tax Law and 61 of the Tax Code and Administrative Procedure.
The referred provisions provide for the assessment of compensatory interest for unduly paid tax liability, from the date of payment until the issuance of the credit note, when the requirement for the tax payment is attributable to error on the part of the services.
In the present case, the addition of the norm of No. 7 of Article 7 of the CIS, to which an interpretative nature was attributed, was relevant to the decision that came to be adopted by the Administration.
The Administration is subordinated to the principle of legality (Article 266, No. 2, of the Constitution), and cannot fail to comply with what is provided in the law under the pretext of its unconstitutionality, a task which, in diffuse terms, and as provided in Article 213, is only conferred on the courts (Gomes Canotilho/Vital Moreira, Annotated Constitution of the Portuguese Republic, vol. II, 4th edition, p. 800).
Since the arbitral decision is based on the refusal to apply a norm on the grounds of unconstitutionality, the prerequisite upon which the condemnation for compensatory interest depends is not met.
III – Decision
It is decided as follows:
a) To allow the request for arbitral decision;
b) To annul the Stamp Tax assessments No. 2017..., in the amount of € 206,317.25, and the compensatory interest assessments Nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., in the total amount of € 18,919.92;
c) To absolve the Respondent from payment of compensatory interest.
IV. Value of the Case
The Applicant indicated as the value of the case the amount of € 225,237.07, which was not contested by the Respondent and corresponds to the value of the assessment that it was intended to challenge, therefore the value of the case is fixed at that amount.
V. Costs
Under the terms of Articles 12, No. 2, and 24, No. 4, of the RJAT, and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 4,284.00, to be borne by the Respondent.
VI. Notification to the Public Prosecutor
Given the refusal to apply a norm contained in a legislative act, the Public Prosecutor, represented by the Attorney General, shall be notified, under the terms and for the purposes of Articles 280, No. 3, of the Constitution and 72, No. 3, of the Law of the Constitutional Court.
Notify.
Lisbon, 13 December 2018
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitrator Member
Cristina Aragão Seia
The Arbitrator Member
Vasco Valdez
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