Summary
Full Decision
ARBITRAL DECISION
REPORT
A..., SGPS, S.A., holder of Tax ID No. ..., with registered office at ..., no. ..., ...-... Lisbon, hereby requests, pursuant to the provisions of paragraph a) of section 1 of Article 2 and Article 10, both of Decree-Law No. 10/2011 (RJAT - Legal Framework for Tax Arbitration), of 20 January, the constitution of an arbitral tribunal for assessment of the legality of stamp duty assessments no. ..., in the amount of €18,603.90, and respective aggregate assessments of compensatory interest nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., in the amount of €1,919.97, which total €20,523.87.
The request for constitution of the Tribunal was accepted and, in accordance with Articles 5, section 3, paragraph a), Article 6, section 2, paragraph a) and Article 11, section 1, paragraph a) of the RJAT, the Ethics Council of the Centre for Administrative Arbitration (CAAD), by dispatch of 2018/07/17, designated the undersigned as arbitrator, and the appointment was accepted within the legally established deadline.
The parties were duly notified of the designation, to which they raised no objection in accordance with the combined provisions of Articles 11, section 1, paragraphs b) and c), Article 8 of the RJAT and Articles 6 and 7 of the CAAD Code of Ethics.
The Claimant opted not to designate an arbitrator and, in accordance with the provision of paragraph c) of section 1 of Article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 06/08/2018.
On 13/11/2018, the meeting provided for in Article 18 of the RJAT took place, at which the witnesses presented were examined, in accordance with the minutes of the meeting which are here fully reproduced, with the parties opting to present written submissions.
The Arbitral Tribunal is regularly constituted and is materially competent to assess and decide the subject matter of the proceedings.
The parties have legal personality and capacity and possess standing, in accordance with the provisions of Articles 4 and 10, section 2, of the RJAT and Article 1 of Ordinance No. 112/A/2011, of 22 March.
No questions have been raised that prevent assessment of the merits of the claim and the proceedings are free from any defects, with conditions met for a final decision to be rendered.
On the Claimant's Request
In its request for arbitral award (hereinafter initial petition or IP), the Claimant requested the annulment of the stamp duty assessment and compensatory interest jointly assessed, all as identified above.
It alleges the existence of defects arising from violation of the principle of fiscal legality, "in particular as to its material dimension, generally implemented through the principle of typicality", and a defect arising from violation of the principle of contributive capacity.
Furthermore, the Claimant requests recognition of the right to compensation for the guarantee indebted provided, covering the costs unnecessarily incurred with the provision of the guarantee.
To support the main claim, the following is alleged, in summary:
The Claimant was the subject of a tax audit by the Tax Authority (AT) as a result of which it was notified of assessments of stamp duty and compensatory interest, the sum of which amounts to €20,523.87, on the grounds that, in the view of the AT, the exemption from stamp duty provided for in paragraph g) of section 1 of Article 7 of the Stamp Duty Code did not apply to the movement of funds under a cash pooling contract entered into between the Claimant and its associated companies.
Disagreeing with the legality of the notified assessments, it filed a gracious complaint, the final outcome of which was rejection of the request. However, it did not pay the assessed tax and interest, with the respective amount being demanded in a tax enforcement proceedings which is suspended by the provision of a bank guarantee.
On 11.04.2014, the claimant entered into with its investees B..., C... and D... three Treasury Operations Management Contracts, copies of which are attached to the file, pursuant to which the parties agreed on the adoption of a mechanism for managing treasury operations, also designated as cash pooling, with the aim of centralizing the performance of treasury operations, thus allowing "greater efficiency and cost reduction in the parties' activities".
According to the Claimant's interpretation of said contract, the respective contracts also aimed to "(…) optimize the management of treasury surpluses and deficits, minimizing financing costs and increasing the profitability and security of investments made, by centralizing payments and monetary resources resulting from collections from third parties".
The Claimant understands that the agreement entered into constitutes a particular type of cash pooling, known as zero balancing, in which "all bank accounts are placed at zero upon transfer to the global account", thus causing the debit balances to be "covered by a reverse transfer from the global account in favor of the debtor bank account".
"The operations underlying the cash pooling provided for in the contractual regulations always had a repayment period of less than one year and aimed to provide a response to immediate treasury needs of the beneficiary companies, whereby all payments were made by the parent company of the Group, on behalf of the investees, with the exception of payments abroad, which are made by each company, and all receipts obtained by the companies involved were transferred, on a daily basis, to the corresponding accounts of the parent company."
During the 2014 tax year, the Claimant granted short-term funds to its subsidiaries, and did not assess stamp duty as it considered that such operations benefited from the exemption provided for in paragraph g) of section 1 of Article 7 of the Stamp Duty Code (CIS), since they complied with a repayment period of less than one year and aimed to provide a response to treasury needs of the beneficiary companies.
The difference between the payments made by the Claimant on behalf of its subsidiaries and the receipts from them, when positive, generates a creditor situation of the Claimant vis-à-vis the subsidiaries and, if negative, generates a creditor situation of the subsidiaries vis-à-vis the Claimant.
By virtue of the contractual provisions, "the balances of the transactions carried out during the term of the contract bear interest, both on passive operations and on active operations – with the amount determined monthly, based on 360 calendar days".
Given the foregoing, the Claimant cannot agree with the assessed taxation and requests its annulment.
The Tax Authority responded that, nonetheless, it does not contest the legitimacy of entering into the cash pooling contract, even recognizing its usefulness in cases where there is a "debit balance" of one of the companies within the group, which thus sees that debit balance be offset by the credit balance of the remaining companies.
It was for this reason that, in cases where the AT verified the existence of such debit balance (working capital was insufficient to meet payable obligations), the Respondent considered that the stamp duty exemption operated.
However, it does not share the same understanding of the reading presented in the arguments of the IP because it is clear that "we are facing management operations, not treasury shortage situations, in which case, therefore, a stamp duty exemption could not occur".
The AT considers that in cases where there is a credit balance (i.e., the company's working capital is sufficient and exceeds the requirements for payable obligations), the financial movements within the group (shifting capital between companies, to profit from earnings), cannot benefit from any stamp duty exemption, on the grounds that there is also allegedly a "treasury shortage".
The Respondent further considers that "the interpretation cannot be sustained that the debit balance can constitute the situation of 'treasury shortage' foreseen in the exemption rule under analysis, as this must result from the company's business activity, and cannot be brought about by that movement which is merely a management instrument, of transferring the entire balance to a 'central entity', artificially leaving the company with a debit balance.
If the Claimant's thesis were to be accepted, all cash pooling situations would be exempt from stamp duty, even though all companies involved had balances capable of paying their debts, in a timely manner, never revealing any treasury shortage (a shortage that only arises, as is evident, when such companies transfer their entire monetary assets to the company that centralizes payments).
In this manner, the payments made by the Claimant, on behalf of the other companies that were part of the cash pooling system, took on the nature of short-term financings, of variable character, which were intended to ensure strict compliance with all obligations assumed by such companies.
Description of Facts
The following facts are considered proven:
The Tax Inspection conducted an external inspection action with reference to the 2014 tax year, in which it verified that the Claimant entered into with three of its investees B..., SA, with C..., SGPS SA and with D..., SA, Treasury Management Contracts (copies of which are in the Administrative File and which were also attached by the Claimant - Doc. 9 to 11), more commonly known as "cash pooling";
In accordance with the contractual terms, the parties agreed on the adoption of a mechanism for managing treasury operations, designated by the parties as Cash-Pooling, in the zero balancing modality, with the aim of centralizing the performance of treasury operations, intended that, with the frequency defined therein, the balance of the subsidiaries' accounts be equal to zero on a daily basis, through treasury operations described therein, with the Claimant to proceed with the payment of debts of the subsidiaries to creditors, with the exception of payments abroad which are made by each company.
It is also considered proven that the operations in question complied with a repayment period of less than one year, as per the Maps which constitute doc. no. 13 to 20, with respect to subsidiary B..., nos. 21, 22 and 23, with reference to subsidiary C... SGPS. SA, and nos. 24, 25 and 26 to 42, relating to subsidiary D..., SA.
The AT considered that the Claimant did not, however, manage to prove the existence of treasury shortages so as to benefit from the stamp duty exemption and, for that reason, proceeded with assessments of the respective tax plus compensatory interest in the amounts referred to above.
The Claimant filed a gracious complaint, which was rejected, having been notified of this decision on 20/02/2018.
The claimant did not make payment of the assessed tax, which is being demanded in tax enforcement proceedings which is legally suspended following presentation of a bank guarantee pursuant to the CPPT.
These are the facts relevant to the decision, which are all documented in the file, and which have not been contested by either party, with the dispute resting essentially on different subsumption of the same within the exemption rule contained in Article 7, section 1, paragraph g) of the CIS.
The witnesses presented by the party were heard, who explained, apparently with knowledge of the matter, the definition of the concepts of cash pooling emerging from the contracts, as well as all the implications of the contracts for the management of the group's treasury.
The parties presented written submissions where, essentially, they maintained the arguments contained in the IP and the Response.
Facts Not Proven
No other facts with relevance to the arbitral decision were proven, and the Tribunal formed its conviction as to the proven facts on the basis of the documents attached to the petition and those contained in the administrative file presented by the Tax Authority with its response, as well as on the testimony of the witnesses who appeared to testify with impartiality and knowledge both of the contracts and the underlying operations.
Matters of Law
The present case concerns a matter that has been addressed in various CAAD decisions, although from a different angle, and which relates to contracts for centralized treasury management that groups of companies are practicing in various modalities, internationally designated as cash pooling contracts.
These instruments aim, in the definitions most commonly set forth in works that address the issue, to maximize treasury availability, not through bank financing, but rather through a compensation mechanism between accounts among treasury surpluses within companies of a group.
In this way, a more comfortable negotiating position is obtained with financial institutions, financial and exchange risks that often occur in cases where there is no such integrated management are reduced. The resources existing within groups.
"The management of financial flows aims briefly to combine the binomial of profitability and liquidity (understood as availability of resources). Thus, centralized treasury management can draw material advantages by eliminating debit balances and credit balances. In addition to the material advantages relating to (i) reduction of interest associated with debit accounts and (ii) overdraft commissions and similar, formal and qualitative advantages can be summarized, such as (i) the strengthening of the company's Financial Statements, through the reduction in the level of bank borrowing, (ii) strengthening of bargaining capacity with the financial institution and (iii) increasing the attractiveness of the company and the group to the capital market".[1]
As the cited author adds, "treasury management centers or centralized treasury management aim at the consolidated management of treasury of various companies of a group of companies through one of those companies or through a company specifically established or intended for that purpose, or in short, to enable relating debit balances and credit balances with a financial institution. This type of operations permits the compensation of the debit balance of some of the companies by the credit balance of the remainder, and moreover the treasury management center can resort to the funds generated to finance the companies of the group".
According to this author there are two modalities of cash pooling contracts, "notional cash pooling", and "cash concentration or zero balancing".
In the first, there is the equivalent of a virtual merger of account balances for interest calculation, that is, the funds are not moved between accounts, but the financial institution (bank) will combine the balances of the different bank accounts of all companies and will charge/pay interest on the aggregate sum of the balances. "At the end of each day the balances of all accounts are related virtually. This relationship is possible through the establishment of 'parent-subsidiary' relationships of the different bank accounts with the 'parent' bank account, which assumes a virtual role".
In the cash concentration modality (zero balancing), the centralization of treasury is operated in the account of the centralizing entity established with the Bank, with one of the group's companies (the centralizing entity) being the account holder. Based on the framework of the treasury centralization contract, actual capital transfers are made to the global account, that is, the funds are physically directed to a single aggregate bank account. In this modality the so-called zero balancing option is the most common, as all bank accounts are placed at zero upon transfer to the global account, consequently the debit balances are covered by a reverse transfer from the global account in favor of the debtor bank account.
The contracts entered into by the Claimant with its subsidiaries contained in the documents attached, in which the parties agreed on the adoption of a mechanism for managing treasury operations with the aim of centralizing the performance of treasury operations and thereby achieving greater efficiency and cost reduction in the parties' activities, fall within this latter modality of cash pooling since, as results from the contracts, all the accounts of the companies covered by them are placed at zero upon transfer to the global account, on a daily basis, as a result of which all payments, with the exception of payments abroad which are made by each company, are made by the parent company, on behalf of its investees and all receipts by the investee companies are transferred to the account of the parent company.
"In this manner, the payments made by the Claimant, on behalf of the other companies that were part of the Cash-Pooling system, took on the nature of short-term financings, of variable character, which were intended to ensure strict compliance with all obligations assumed by such companies."
Having made this brief and concise description of the various treasury management contracts, it should be noted from the outset that we are dealing with financial operations, as, according to the cited author, "the correct management of the available funds of a company, or of a group of companies, implies that excess monetary resources can be applied or placed in other companies that need them, either fleetingly or also in a lasting manner."
Now, for what matters in the present case, treasury operations, as operations of a financial nature performed by any entity and at any title, from which results the use of credit in the form of funds, goods and other values, encompassing in its scope both the acts of transfer of excess funds performed, are subject to the rule of incidence of stamp duty, taking into account the combined interpretation of Article 1 of the Code and Article 17.1.4 of Item 17 of the General Table of Stamp Duty. And the incidence of this rule encompasses both uses of credit and interest and commissions charged by or with the intermediation of financial institutions.
More specifically, stamp duty on the use of credit provided for in said item 17.1 of the GTSD is due
"…
17.1
For the use of credit, in the form of funds, goods and other values, by virtue of the granting of credit at any title except in the cases referred to in item 17.2, including the assignment of credits, factoring and treasury operations when involving any type of financing to the assignee, member or debtor, always being considered as new granting of credit the extension of the term of the contract - on its respective value, based on the period: (Wording given by Law No. 12-A/2010, of 30/06)
17…
…
17.1.4 - Credit used in the form of current account, bank overdraft or any other form in which the period of use is not determined or determinable, on the monthly average obtained through the sum of the debt balances determined daily, during the month, divided by 30 – 0.04%
…."
There is, therefore, no doubt that these treasury operations identified in the case are financial operations and as such subject to taxation under general terms, and on this matter there is no divergence in the understanding of the parties.
However, the situation we are interested in assessing is the alleged violation of the provision contained in paragraph g) of section 1 of Article 7 of the Stamp Duty Code, which contemplates the possibility of these financial operations benefiting from the stamp duty exemption under the terms provided therein.
This provision establishes, in the wording at the time, that:
Article 7
Section 1 - The following are also exempt from tax:
…
g) Financial operations, including the respective interest, for a period not exceeding one year, provided that they are exclusively intended to cover treasury shortages and performed by risk capital companies in favor of companies in which they hold stakes, as well as those performed by other companies in favor of companies dominated by them or in companies in which they hold at least 10% of the voting capital or whose acquisition value is not less than €5,000,000, according to the last agreed balance sheet, and also performed for the benefit of a company with which it is in a relationship of dominance or group.
First, it is relevant to consider that for the granting of the exemption the law requires that the following cumulative requirements be met: the financial operations be practiced in favor of a company with which it is in a relationship of dominance or group, for a period not exceeding one year, and the same be intended exclusively to cover treasury shortages of the beneficiary.
In the present case, the Parties understand that all the requirements are met, disagreeing only as to the requirement of the destination of the financial operation in question, for which we dispense with analyzing the remainder, that is, it is proven that there is a granting of credit for a period of less than one year and that the credit granting operations were performed in favor of entities in relation to which the Claimant is in a position of dominance or group, but, for the purpose of evidence, the question is whether the granting of credit based on the contracts entered into between the Claimant and its subsidiaries was exclusively intended to cover situations of real treasury shortage or whether there are situations in which it is understood that such actual shortage does not exist.
At the end of the day, with no divergence in the matter of fact, the only remaining divergence is one of law, and which boils down to clarifying the notion of treasury shortage referred to in paragraph g) of section 1 of Article 7 of the CIS.
Furthermore, the AT does not contest the legitimacy of the operation and even recognizes its usefulness, but in the inspection proceedings, it distinguishes operations that it considers as true situations of treasury shortage in which, with respect to them, it did not assess tax because those financial operations effectively benefit from the exemption provided for in said paragraph g) of section 1 of Article 7 of the CIS, but there were others, and which are those that gave rise to the assessment of tax challenged, with respect to which it considers that tax is due, that is, "…cases where there is a credit balance (i.e., the company's working capital is sufficient and exceeds the requirements for payable obligations)…", understanding, as a consequence, that they cannot benefit from any stamp duty exemption.
According to the Respondent, for the debit balance to constitute the situation of "treasury shortage" provided for in the exemption rule, it must result from the company's business activity, and cannot be brought about by this movement of transferring balances to a "central entity" by force of the contract, which is merely a management instrument, and which places, artificially, the company with a debit balance.
In accordance with the Report, at page 41, "… treasury shortages exist when the short-term funds available in a company (assets) are insufficient to meet commitments/obligations (liabilities), with reference to the same time horizon, that is, when the existing working capital is less than the required working capital needs".
Making this concrete: "… the assessment of the treasury shortage situation of a company is based on the concept of treasury situation, which relates to the comparative analysis between working capital and required working capital, from a short-term perspective".
From this it follows that, as there is effectively no legal definition of the concept of treasury shortage, as the parties understood and the Tribunal understands, the AT opts to find it by resorting to notions essentially of a accounting nature relating to the company's situation.
In turn, the Claimant, disagreeing with the AT's position, considers that the notion of the concept of treasury shortage capable of conferring the right to exemption is that which results from a legal interpretation that respects the general sense of the concept, as determined by the Civil Code, which the AT itself also defends with respect to the definition of the concept of treasury operations established in Circular No. 3/1997, of 20/02: "the absence of that definition does not prevent the correct interpretation of the provision, and the integration must be carried out with respect to the general sense, within the general rules applicable to any legal norm, pursuant to Article 9 of the Civil Code".
Thus the Claimant considers that in situations underlying the contracts there is treasury shortage whenever there is a deficit at the end of each month, taking into account the payments and receipts that are framed within the cash pooling contract.
Faced with this array of opinions, a decision must be made between the methodology followed by the parties, and our understanding is that, to arrive at the concept of treasury shortage, the general sense of treasury shortage should be allowed to prevail through an interpretation of the norms based on the general rules of law and which takes into account not only the historical element underlying the concept of the definition of treasury operation and the definition of treasury shortage in a broader context of the Stamp Duty Code applicable to SGPSs, but also the teleological and systematic elements.
On the level of general theory we agree with this position: the definition of the concept of treasury shortage should be determined following the general rules of law, since we are speaking of legal norms, furthermore norms relating to a tax benefit arising from the exemption established by law.
In fact, if we pay attention to the doctrine contained in said Circular No. 3/1997, and following that doctrine, the AT established for the interpretation of the concept of treasury operation the need to take into account the historical element and the systematic element, not being concerned with accounting definitions because the treasury operations in question here are only relevant in our law as carried out by companies that are in a relationship of dominance or group.
Now, if the legal concept of treasury operation must be determined following the general rules of law in the interpretation of legal norms which today everyone peacefully accepts apply equally in the interpretation of tax norms, then the concept of treasury shortage should follow the same path because the law contains nothing to the contrary or which implies the use of different rules.
First, the thesis of the AT expressed in the Doctrinal Note which constitutes Doc. 12 is corroborated, which states that treasury shortage does not automatically result from the "zero balancing" mechanism emerging from the contracts. However, "in these cases it is important to keep in mind that, in each concrete situation, treasury shortages should be delimited in light of commitments or obligations to be satisfied in a given short-term time horizon, and the shortage should be reported as of the beginning of credit use and appear reflected in the accounting records of the company beneficiary of the credit…".
We also agree with the case law emerging from Decision No. 76/2013-T of the CAAD, when it requires that, as other objectives result from the contract, it is necessary to prove that the credits granted are intended to supply treasury shortages of the beneficiaries in order to consolidate a situation of exemption classifiable under paragraph g) of section 1 of Article 7 of the CIS.
As we have seen, the AT for the definition of treasury operations, made use of the historical element by appealing to the norms of Decree-Law No. 298/92, of 31 December, to Decree-Law No. 495/88, of 30 December and to Decree-Law No. 318/94, which introduced amendments to the latter, all diplomas that encouraged economic agents to constitute economic groups and to ensure intra-group financing with the gains resulting therefrom, establishing specific rules for these movements of funds, it being legitimate to conclude, as the Claimant does, that these norms are nothing more than an indicator of compliance with the legislative authorization granted in Law No. 98/88, of 17/8, the legislator aiming to ensure the objective of not taxing treasury operations performed, which among them, in accordance with Decree-Law No. 98/88, of 17/08, include the intention of "not penalizing … the centralized management of treasuries of groups and other actions resulting from the nature of the companies", not even being a question of the concept of treasury shortage. In this sense, the interpretation cannot empty the effect of non-"penalization" that the legislator expressly intends to achieve in case of use of instruments intended to provide gains with the creation of economic groups.
As Article 9 of the Civil Code requires, the interpretation must reconstruct, from the texts, the legislative thought, taking into account above all the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied.
Now, taking precisely into account the historical element in the interpretation of the legal institute of centralized treasury management of economic groups, we find that the legislator was manifestly concerned with saying that such management cannot be penalized. For that reason the interpretation cannot disregard the purposes of the law which will be the establishment of a set of mechanisms that facilitate the management of company treasury with the gains resulting therefrom. And there is no doubt that cash pooling contracts assume a privileged form of treasury management, such as "… the freeing up of resources for other activities, management from a group perspective and the strengthening of bargaining capacity and value gains…"[2], mainly as a way to meet specific or temporary needs of companies.
It is true that one could say that tax law did not transpose this intention with such great breadth, as it limited the exemption to financial operations intended exclusively to cover treasury shortages performed between groups and not to all financial operations of movement of funds in general between groups. However, the interpretation of the law must necessarily take into account the remaining elements, such as the set of norms which in this case should also consider the terms of the contracts in question. And it is not reasonable that, disregarding the linearity of the punctual lack of funds that is covered by a transfer under the contract, rules relating to concepts more related to the company's financial situation than to the deficit position of treasury on a given day are invoked to assess treasury shortage. It would be a restrictive interpretation contrary to the purpose of the norm.
From this it follows that the interpreter must base his interpretation on obtaining the normal sense of the law, which considers all the remaining elements, and, therefore, the interpretation most coinciding with the purpose of the provision will be the one that accepts that there is treasury shortage within the meaning of paragraph g) of section 1 of Article 7 whenever it is found that the financing emerging from the contract is intended to meet specific or temporary needs in the treasury of the beneficiary company. Because if in certain periods it can happen. It is this interpretation that comes closest to the "legislator's intention of attempting to guarantee rational, flexible and effective financial management of economic groups."
We thus agree with the Claimant and with the authors cited on this matter, that the interpretative analysis cannot be carried out on the basis of the notion of "treasury situation" of a company to the detriment of momentary treasury shortages because that concept is more related to the situation and financial balance of a company than to immediate treasury needs to meet specific shortage situations.
In truth the contracts analyzed here are means of, in addition to the remaining benefits resulting therefrom and already noted, providing cash availability for immediate operations or specific or temporary needs which, otherwise, would imply delayed payment to the supplier or recourse to credit, precisely the opposite of what is intended to be achieved with centralized treasury management.
In this conformity it is more consonant with the law to consider that "the concept of treasury shortage thus reports to the need or otherwise of the company to promptly meet its obligations resulting from the operating cycle and not directly to the cash situation of the companies"[3].
Hence, the predominance of the criteria should be based on concepts of legal normality that result first from the contract itself, when, of course, duly proven, and not from concepts called into question which, although they may have sufficient scientific virtue do not observe the purpose that the legislator had in mind with the institution of the regime or will only be valid when there is need to define treasury shortage in other circumstances. It is, therefore, more apposite to subscribe to a framework based on a concept of normality that there will be treasury insufficiency in light of commitments or obligations to be satisfied in a time horizon, against the available funds.
It was proven in the case, either through Maps and other elements which are confirmed by the AT in the Report, or even through the testimonial evidence produced, that the credits granted by the parent company to its respective subsidiaries were intended to meet payments for which they were responsible on dates when the balance of their account was insufficient or did not exist, which, following the interpretation of the law, corresponds to financial operations exclusively intended to cover treasury shortages since they are intended to supply insufficiencies of availability to meet short-term commitments on determined dates.
Consequently, the assessments challenged here are not in conformity with the norm that results from paragraph g) of section 1 of Article 7 of the Stamp Duty Code, since, considering what was proven that the financial operations identified in the case corresponded to transfers of funds intended to cover exclusively situations of momentary treasury shortages to meet short-term obligations, and as all the remaining requirements established in Item 17 of the General Table of Stamp Duty are met, the AT should have refrained from making such assessments as a situation of stamp duty exemption existed in all cases.
Being illegal the tax assessments, as a consequence, the compensatory interest assessments made in conjunction are illegal.
In this conformity, there is no need to analyze and decide on the remaining matter relating to the defects of the assessment itself, and its consideration is barred.
Compensation for Undue Guarantee
In addition to the declaration of illegality of the assessment, the Claimant also requests recognition that the bank guarantee provided was undue and that, thereafter, it be awarded compensation intended to reimburse the costs inherent to the bank guarantee it had to provide for the suspension of the tax enforcement proceedings, in accordance with what is provided for in Article 53 of the General Tax Law.
As the Claimant states, Article 171 of the CPPT establishes that "compensation in case of bank guarantee or equivalent indebted provided shall be requested in the proceedings in which the legality of the exigible debt is contested" and that "compensation shall be requested in the complaint, challenge or appeal or in case its basis is subsequent within 30 days of its occurrence".
As there has been a consistent understanding in the CAAD case law, it is considered that the judicial challenge proceedings encompass the possibility of conviction for payment of compensation to the challenger for the provision of undue guarantee, and it is even decided that the arbitral process is, in principle, the appropriate procedural means to formulate such request, which is justified by evident reasons of procedural economy, as the right to compensation for undue guarantee depends on what is decided regarding the legality or illegality of the assessment act.
The request for constitution of the arbitral tribunal and for arbitral award has as a corollary that it will be in the arbitral process that the "legality of the exigible debt" will be discussed, whereby, as results from the express wording of that section 1 of the referred Article 171 of the CPPT, it is also the arbitral process that is appropriate for assessing the request for compensation for undue guarantee.
The regime for the right to compensation for undue guarantee is set forth in Article 53 of the LGT, which establishes the following:
Article 53 - Guarantee in case of undue provision
1. The debtor who, to suspend enforcement, offers bank guarantee or equivalent shall be compensated in whole or in part for losses resulting from its provision, should he have maintained it for a period exceeding three years in proportion of settlement in administrative appeal, judicial challenge or opposition to enforcement that have as their object the guaranteed debt.
2. The period referred to in the previous section does not apply when it is verified, in gracious complaint or judicial challenge, that there was error attributable to the services in the assessment of the tax.
3. The compensation referred to in section 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the interest rate.
In the case at hand, it is manifest that the errors underlying the stamp duty assessments are derived from an non-conforming interpretation and application of the law attributable to the Tax Authority and Customs Authority, since that application and the subsequent assessments of Stamp Duty and compensatory interest were initiated by it. Therefore, the Claimants have the right to compensation for the guarantees provided. As there are no elements that allow determining the exact amount of compensation, the respective calculation must be made with reference to the values that come to be assessed in execution of this decision (Article 609, section 2, of the Code of Civil Procedure, applicable by force of Article 2, paragraph d) of the LGT).
Decision
Accordingly, this Arbitral Tribunal decides:
1. To uphold the request for arbitral award;
2. To determine the annulment of the stamp duty assessment No. ..., in the amount of €18,603.90, and respective assessments of compensatory interest bearing nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., in the amount of €1,919.97, all referring to the year 2014, which total €20,523.87;
3. To uphold the request for compensation for undue guarantee and to condemn the Tax Authority and Customs Authority to pay the costs incurred with its provision; and
4. To condemn the Tax Authority and Customs Authority to pay the costs of the proceedings.
Value of the Case – Costs
In accordance with the provisions of Articles 306, section 2, of the CPC and 97-A, section 1, paragraph a) of the CPPT and 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €20,523.87;
Pursuant to Article 22, section 4, of the RJAT, the amount of costs is set at €1,224.00, taking into account Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Authority.
Lisbon, 04-04-2019
The Sole Arbitrator
José Ramos Alexandre
[1] In "Fiscal Contextualization of Centralized Treasury Management (cash pooling) in the Business Environment", by J. Fernando Abreu Rebouta, Faculty of Law of the University of Porto (2005)
[2] José F. Abreu Rebouta, cited work
[3] In Pedro Patrício Amorim, "The stamp duty exemption in treasury management of economic groups", p. 36.
Frequently Asked Questions
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