Summary
Full Decision
ARBITRAL DECISION
I – REPORT
1. A..., S. A., legal entity no. ..., with registered office at Street ..., no. ..., ..., floor..., ... (hereinafter referred to as A... or "Claimant"), came, pursuant to the terms and for the purposes of the provisions of paragraph a) of section 1 of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January, to request the establishment of an Arbitral Tribunal with a view to the declaration of illegality and partial annulment of the decision partially granting the Administrative Objection with no. ...2018..., handed down on 19 March 2018 (doc. no. 1 attached to the arbitral request) filed against the statement of assessment of Stamp Duty (SD) no. 2017..., of 14 August 2017 (doc. no. 2 attached to the arbitral request), relating to the fiscal year 2013, in the amount of € 204,865.55 (two hundred and four thousand eight hundred and sixty-five euros and sixty-five cents).
2. The Respondent is the Tax and Customs Authority (hereinafter referred to as "TCA" or "Respondent").
3. The request for establishment of the arbitral tribunal was accepted by the Esteemed President of the Centre for Administrative Arbitration (CAAD) and automatically notified to the Respondent in accordance with regulatory procedures.
4. Pursuant to the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrators of the collective arbitral tribunal Judge José Poças Falcão (Chair), Dr. Miguel Luís Cortês Pinto de Melo and Dr. Cristina Aragão Seia, who communicated acceptance of the appointment within the legal time limit.
5. On 16-07-2018, the Parties were duly notified and did not manifest, within the terms and legal time limit, any intention to refuse the appointment of the arbitrators (article 11, section 1, paragraphs a) and b) of the Legal Regime of Tax Arbitration (LRTA), read together with articles 6 and 7 of the Deontological Code).
6. In accordance with the provision of paragraph c), of section 1, of article 11 of the LRTA, the Arbitral Tribunal was constituted on 06-08-2018.
7. Duly notified, the Tax and Customs Authority submitted a reply in which it defended the inadmissibility of the request, defending itself solely through objection.
8. As no witness examination was requested and as it was understood that there is no controversy regarding the essential and relevant facts for the decision and which have sufficient documentary support, the hearing referred to in article 18 of the LRTA was dispensed with.
9. The Parties submitted arguments in which they reiterated their positions.
10. The date of 18.12.2018 was set for the delivery of the final decision.
II – PRELIMINARY ASSESSMENT
11. This arbitral tribunal is materially competent.
12. No exceptions were raised.
13. The Parties possess legal personality and capacity, are legitimate as to the request for arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March.
14. No procedural nullities are found, so it is necessary to proceed to the merits.
III. MERITS
1. FACTUAL MATTERS
1.1. Established Facts
15. The Tribunal considers the following facts to be proven:
a) The Claimant is a company in the Telecommunications Network Engineering sector in Portugal, developing activities of planning, design, construction, installation and maintenance, being therefore an integrator of global solutions.
b) In compliance with Service Order no. OI2015..., a tax inspection action was opened in the name of A..., dated 9 June 2015, for the tax period 2013.
c) The tax inspection action commenced on 25 January 2017 and was closed on 30 June of the same year, with A... being notified of these facts.
d) The Service Order, of general scope, occurred following the inspection action for the fiscal year 2010, with Service Orders subsequently opened, of partial scope (Corporate Income Tax), for the fiscal years 2011 to 2014, and now in dispute are the corrections made in respect of SD for the fiscal year 2013.
e) As a result of the Tax Inspection Report (doc. no. 3 attached to the arbitral request), the following corrections were proposed regarding SD for the fiscal year 2013:
i) Application of the general anti-abuse rule, in accordance with section 2 of article 38 of the General Tax Code (GTC), which resulted in a correction in respect of SD in the amount of €38,812.33;
ii) Assessment of SD on the loan granted to the parent company B..., SGPS, S.A., in the amount of €137,587.28.
f) This amount was determined based on the application of the rate of 0.04% to the monthly average of the credit, in accordance with item 17.1.4 of the General Table of Stamp Duty (cfr table contained in article 54 of the request for arbitral pronouncement);
g) As a result of this inspection action, the TCA proceeded to assess the tax in question and documented in the proceedings (additional assessment of stamp duty no. 2017..., of 14 August 2017);
h) The Claimant filed an Administrative Objection on 11 January 2018 – doc. no. 5 attached to the arbitral request.
i) The Respondent partially granted the Claimant's objection, deciding that the right to assess Stamp Duty had lapsed with respect to January 2013 and...
j) ... maintained the corrections relating to Stamp Duty, both those resulting from the loan that had been granted to the parent company B..., SGPS, S.A., and those resulting from the application of the general anti-abuse clause.
k) That is: from the correction resulting from the application of the general anti-abuse rule, in the amount of €38,812.33, the amount of €3,296.39 should be deducted, referring to January 2013, and from the correction on the loan granted to B..., in the amount of €137,587.28, the amount of €14,085.30 should be deducted, as stamp duty, and from the compensatory interest, in the amount of €28,465.94, the amounts of €582.33 and €2,488.27 should be deducted respectively, referring to January 2013, which were cancelled by the TCA, with the corrections of SD and compensatory interest for the months of February to December 2013 remaining in dispute.
l) The subject matter of the present request for establishment of the arbitral tribunal regarding the decision partially granting the Administrative Objection above identified (immediate subject matter) corresponds solely to the application of Stamp Duty rules to the loan granted by the Claimant to the parent company B..., SGPS, S.A. (mediate subject matter), which was partially at the origin of the tax assessment, relating to the period 2013.
m) As the Claimant did not proceed with payment of these amounts (total of € 143,335.57) by the end of the prescribed period – 11.10.2017, it was cited in the context of tax enforcement proceedings no. ...2017..., relating to the fiscal year 2013.
n) Having consequently filed suitable security, in the form of a bond, in order to proceed with the suspension of the enforcement proceedings, thus avoiding damage to its assets (cfr. doc. no. 4 attached to the arbitral request).
o) B..., SGPS, S.A. holds a 99.3% stake in the capital of the Claimant.
p) On 31 December 2009, the Claimant and B..., SGPS, S.A. entered into a loan agreement, in the form of an intra-group loan, up to the amount of € 40,000,000.00, in individual tranches with repayment by the FIFO methodology, to address treasury shortfalls or financing needs of the borrower (doc. 6 attached to the arbitral request).
q) The uses of credit were accounted for in accordance with the record contained in doc. no. 7 attached to the arbitral request, which is hereby reproduced herein.
r) The Claimant filed a request for arbitral pronouncement on 25.05.2018.
1.2. Grounds regarding the Factual Matters
16. The facts were deemed proven based on the documents submitted by the parties and contained in the administrative proceedings, as well as on the positions of the parties in their respective pleadings.
2. LEGAL MATTERS
Questions to be Decided:
A - On the legality of the decision partially granting the Administrative Objection filed against the additional SD assessment
In the arbitral request, the Claimant partially contests the legality of the partial granting of the Administrative Objection no. ...2018..., of 19.03.2018, filed against the additional SD assessment no. 2017... of 06.07.2017 relating to SD for the fiscal year 2013.
The aforementioned additional assessment was based on the Tax Inspection Report drawn up by the Tax Inspection Services (TIS) pursuant to Service Order no. OI 2015..., with the present proceedings discussing the part relating to the correction made on the basis of incidence on SD of the loan granted by the Claimant to the parent company B..., SGPS, S.A.
To that end, it argues that the disputed assessment suffers from a defect of error regarding the qualification and quantification of the taxable event, since, in its view, all the requirements on which the exemption from taxation provided for in paragraph g) of section 1 of article 7 of the Stamp Duty Code (SDC) are satisfied.
It bases its request on the following grounds:
- the Claimant is held almost entirely (99.3% of capital) by "C..., SA", being in a relationship of control with the parent company;
- it granted an intra-group loan to company C..., SGPS, S.A. with the purpose of covering treasury shortfalls and which was made through individual tranches with repayment by the FIFO methodology;
- the financial operations carried out by it were fully repaid by the borrower within a period not exceeding one year, and what is relevant for assessing the period is the period that elapses between each use of credit and its respective repayment (and not the period formally established in the contract);
- there being, moreover, an evident correlation between the loans and the treasury shortfalls of B... as results from the comparative analysis of the monthly average balance of the funds granted by the Claimant.
Therefore, the Claimant maintains that the financial operation in question met all the requirements legally required by paragraph g) of section 1 of article 7 of the Stamp Duty Code (SDC) with a view to the application of the exemption provided therein, insofar as it involved the granting of credit for the benefit of the company with which it is in a relationship of control or group, for a period not exceeding one year and intended to cover treasury shortfalls.
By not considering these requirements to be satisfied, the decision partially granting the Administrative Objection and the corresponding SD assessment issued by the Respondent should, in the Claimant's view, be considered illegal and, consequently, annulled.
In its reply, the TCA maintains that the burden of proof of the facts characterizing the existence of the exemption belongs to the taxpayer, being the responsibility of the latter to demonstrate that the financial operations did not have a period exceeding one year and were exclusively intended to cover treasury shortfalls, which the Claimant failed to prove. It would also be necessary to establish that the operation was intended to cover exclusively treasury shortfalls. And on that point, what appears in the contract is that the purpose of the contract was treasury shortfalls or financing needs. Moreover, for the loan to aim to meet exclusively concrete treasury shortfalls, it would become necessary to report the treasury insufficiencies to the beginning of each use of credit through accounting records. The Respondent concluded that the request was unfounded.
It is necessary to decide.
It should be noted that this Tribunal will follow very closely, as it agrees with it, the decision handed down by an Arbitral Tribunal constituted within the scope of CAAD in case no. 31/2018-T in a situation similar to that in the present case, which is published on the internet on the CAAD website (www.caad.org.pt).
The Claimant seeks to obtain the annulment of the stamp duty assessment for the year 2013 on the treasury operations carried out for the benefit of the commercial company B..., SGPS, SA, alleging that these financial operations meet the requirements of the tax exemption provided for in article 7, section 1, paragraph g), of the SDC.
As results from this legal provision, with the heading "Other Exemptions", are also exempt from the tax "financial operations, including their respective interest, for a period not exceeding one year, provided they are exclusively intended to cover treasury shortfalls and carried out by venture capital companies (VCC) in favor of companies in which they hold stakes, as well as those carried out by other companies in favor of companies dominated by them or in companies in which they hold a stake of at least 10% of capital with voting rights or whose acquisition value is not less than (euros) 5,000,000, in accordance with the last agreed balance sheet, and likewise, carried out for the benefit of a company with which it is in a relationship of control or group".
The exemption therefore depends on the cumulative verification of three requirements: i) it must be financial operations for a period not exceeding one year; ii) exclusively intended to cover treasury shortfalls; iii) carried out for the benefit of a company with which the lender is in a relationship of control or group.
In the case sub judice, on 31 December 2009, the Claimant and B..., SGPS, S.A. entered into a loan agreement, in the form of an intra-group loan, up to the amount of € 40,000,000.00, in individual tranches with repayment by the accounting methodology known by the acronym FIFO (first in, first out), to address treasury shortfalls or financing needs of the borrower.
The aforesaid loan could reach the limit value of € 40,000,000.00 and was granted to the borrower B..., SGPS, SA, which holds a 99.3% stake in the capital of the lender and present Claimant, being characterized as an intra-group loan, and which has the purpose of "treasury shortfall or financing needs".
It was further declared that the loan is intended to be granted in "individual tranches with repayment by the FIFO methodology".
The loan agreement clearly meets the requirement of the relationship of control or group referred to in the aforesaid provision of paragraph g) of section 1 of article 7 of the SDC, insofar as it translates into a loan from Claimant A... to its parent company, a SGPS holding 99.3% of its capital.
However, one of the other essential requirements is not satisfied.
Thus, the loan is referenced as having the purpose of "treasury shortfall or financing needs" and, in that sense, does not satisfy one of the criteria expressly mentioned in paragraph g) of that section 1 of article 7 of the SDC, according to which financial operations must be intended exclusively to cover treasury shortfalls (emphasis added), and it is necessary to exclude from the scope of application of the tax benefit those other operations – such as the one being analyzed in the present case – that has as its object not only treasury shortfall – understood as a temporary insufficiency of financial resources for the fulfillment of obligations due or with imminent maturity – but also financing needs. In fact, this is a loan of high value and for a relatively long period, without it being demonstrated a relationship between the existence of treasury shortfalls and the amounts loaned.
On the other hand, it is verified that, throughout the fiscal years, the claimant continuously made available to its mentioned shareholder amounts or values of a magnitude that would hardly be compatible with the so-called "treasury shortfalls".
More specifically: the successive financial flows of debit and credit, with amortization processed by direct chronological order of their execution, according to the cited accounting methodology "FIFO", are operations not compatible with a simple autonomous financing operation with the objective of supplying punctual liquidity difficulties.
That is, and concluding on this particular point: the aforesaid loan did not aim at resolving treasury problems in the sense pointed out above, despite the obvious evidence of the shareholder's fragile financial situation, and, consequently, the requirement for exemption is not met: the loan having the objective of covering treasury shortfalls.
On the other hand, the remaining elements of the proceedings reveal, moreover, that the loan does not have the typical nature of a financial operation intended exclusively to address treasury shortfalls. It suffices to note that the summary table of credit used describes successive financial flows of debit and credit distributed across two different accounts (26620 and 26621) whose amortization is processed by direct chronological order of their execution, according to the cited accounting methodology FIFO (first in, first out), and which is not compatible with a simple autonomous financing operation that aims to supply punctual liquidity difficulties.
On 31 January 2010, the outstanding balance was € 22,148,670.13, appearing recorded in the 3rd and 6th columns, and then successive debit movements being recorded (2nd and 3rd columns) and credit movements (4th and 5th columns). However, the balance determined in the 6th column is determined only through the debt amortizations contained in the 4th and 5th columns, implying that this initial debt was deemed extinguished on 15 June 2011. The debit movements that continue to be recorded in columns 2 and 3 are not considered for the balance determination and instead transfer to a new column (7th), resulting in the constitution of a new debt that, on that same date of 15 June 2011, reached € 41,830,867.13.
From then on, credit movements are being deducted from the debt balance contained in the 7th column, whereas debit movements are accumulated in a new column (8th), such that on 15 December 2011, when the debt contained in the 7th column is settled, the new debt accounted for in column 8 amounts to € 37,552,801.30.
Similar procedures follow thereafter, which in practice determine the amortization of existing debt through credit movements and the constitution of a new debt through debit movements (columns 9, 10, 11 and 12).
Furthermore, it is noted that, through the various accounting records, the Claimant continuously made available to the other company in the group, during the years 2011, 2012 and 2013, amounts of such magnitude that, it is reiterated, are not compatible with the simple occurrence of treasury difficulties.
In this context, the financial operation must be characterized as a credit facility in the form of current account that falls within the incidence rule of item 17.1.4 of the General Table of Stamp Duty.
A credit facility is understood as a contract by which one party undertakes to provide the other with the availability of credit up to a certain amount and for a determined time. By effect of the contract, the creditor acquires the right to use the credit made available to him as and when he deems convenient, so it is at the moment when the transfer of financial means is verified through the use of the credit that the credit relationship is effectuated.
By effect of the amendments introduced in the new SDC, the fact generating the obligation of the tax shifted to be the use of credit, and not the execution of the contract – as resulted from the preceding regime – and, in that sense, the taxable value is now determined based on the obtaining of the credit and the period for which it will be in force.
The general rule of incidence of the tax is that of item 17.1 of the GTSD, which taxes the use of credit, in the form of funds, goods or other values, on the respective value based on the period. In the case of contracts with a determined period, the tax will apply to each of the uses of credit in accordance with items 17.1 to 17.3 of the GTSD, with the rate of 0.5% being applicable when the credit is for a period equal to or exceeding one year, of 0.6% when the credit is for a period equal to or exceeding five years, and of 0.04% per month when the period is less than one year, this period corresponding to the time elapsed between the date of use of the credit and the end date contained in the contract until which the credit is granted.
Conversely, in credits used in the form of current account, bank overdraft and whenever the period of use is not determined or determinable, the tax fact takes on a continuous nature, and for these cases item 17.4 sets another criterion for determining the tax, mandating the application of the rate of 0.04% to the monthly average obtained through the sum of the outstanding balances determined daily, during the month, divided by 30. The tax applies, in this case, to the balances determined in each month, being only in that sense that relevance can be attributed to the temporal factor.
This is, moreover, the principle that results from article 5, paragraph g), of the Stamp Duty Code: in credit operations, the tax obligation is considered to be constituted at the moment when they are realized or, if the credit is used in the form of current account, bank overdraft or any other means where the period is not determined nor determinable, on the last day of each month.
Being this the legal regime applicable to the situation in the case, it has no relevance whatsoever the demonstration that the repayments of the credits made available, in the tax period in question, were always carried out within a period less than one year.
This requirement would be relevant if we were facing an autonomous operation intended exclusively to cover treasury shortfalls for the purpose of being able to benefit from the tax exemption provided for in article 7, section 1, paragraph g), of the SDC. But, as we have seen, not only is the financing not intended exclusively for this purpose, but it typically takes on the nature of a credit facility in the form of current account without determined or determinable period, which is from the outset evidenced by the successive financial flows of disbursement and repayment.
It is important to bear in mind, finally, the rules of evidentiary law that result from article 74 of the GTC and article 414 of the Code of Civil Procedure: the burden of proof of the facts constituting the rights of the tax administration or taxpayers rests on whoever invokes them, which translates into a general principle of allocation of burden of proof, whereby it falls to the Administration to prove the existence of the tax facts on which the assessment is based and to the taxpayer to prove the facts that are imperative, modifying or extinctive of that right (also article 342 of the Civil Code).
Tax exemption is, by nature, a fact imperative of standard taxation, so – as is settled judicial understanding – it is the taxpayer who must prove the existence of the requirements on which the recognition of the tax benefit depends (Decision of the Superior Tax Court of 14 January 2005, case no. 013143; decisions of the Tax Court of the South of 24 January 2012, case no. 05079/11, of 2 July 2013 and case no. 06629/13 and arbitral decisions handed down in cases nos. 76/2013-T and 163/2015-T).
Where there is a situation of lack or insufficiency of proof regarding any of the facts that are indispensable for the decision of the case, these must be deemed non-existent, insofar as they cannot be considered as proven, implying that the tribunal issues a decision unfavorable to the party that was burdened with the proof of these facts; if the Tribunal has doubts about the reality of a fact, it should consider this fact as not proven in light of the provision of the cited article 414 of the CCP ["(...)doubt about the reality of a fact (...) is resolved against the party to whom the fact benefits (...)"]
In the present case, the Claimant did not carry out the proof of the requirements on which the requested tax exemption depends, and, specifically, the proof of the exclusive purpose of the loan to cover treasury shortfalls. Moreover, other elements of the proceedings point to the existence of a type of current account financing without determined or determinable period that does not fall within the provision of the rule of article 7, section 1, paragraph g), of the SDC. And even if any doubt could subsist as to these evidentiary results, the fact is that the doubt would always have to be resolved in a sense unfavorable to the taxpayer on whom rested the burden of proof of the fact imperative of the stamp duty assessment and to whom the proof of this fact would manifestly benefit.
B - Compensation for provision of undue security.
The inevitable inadmissibility of the request for annulment of the disputed tax act obviously prejudices the assessment and decision of the compensation request for undue provision of security.
IV – DECISION
The Tribunal decides as follows:
a) To declare the arbitral request totally inadmissible;
b) To maintain in the legal order the decision partially granting, as set out above, the Administrative Objection relating to the tax acts of stamp duty assessment for the year 2013; and
c) To condemn the claimant in the costs of the proceedings.
V - VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at €143,335.57, pursuant to article 97-A, section 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of section 1 of article 29 of the LRTA and of section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
VI - COSTS
The arbitration fee is fixed at €3,060.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, as well as section 2 of article 12 and section 4 of article 22, both of the LRTA, as well as section 4 of article 4 of the said Regulation, to be borne by the Claimant as previously decided, as the unsuccessful party.
Notify accordingly.
Lisbon and CAAD, 17-12-2018
The Collective Arbitral Tribunal,
José Poças Falcão
(Arbitrator President)
Miguel Luís Cortês Pinto de Melo
(Assistant Arbitrator)
Cristina Aragão Seia
(Assistant Arbitrator)
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