Stamp Tax on Pension Fund Management Fees: CAAD Arbitration Ruling 303/2017-T

ARBITRATION AWARD

I – Report

The taxpayer "A... – Pension Funds Management Company, S.A.", with the NIPC ... (hereinafter "Claimant"), presented, on 29 April 2017, a petition for the constitution of a Collective Arbitral Tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter "RJAT"), against the Tax and Customs Authority (hereinafter "TA" or "Respondent").

The Claimant requests an arbitral pronouncement on the illegality of the levies of Stamp Duty (hereinafter "SD") and compensatory interest No. 2016..., relating to the fiscal year 2015, in the total amount of €350,590.28. The Claimant requests the annulment of such tax acts and compensation, plus interest, corresponding to amounts improperly expended with the constitution of a bank guarantee in the amount of €443,251.80 (and further condemnation in costs "and in appropriate attorney's fees"). Subsidiarily, it requests the partial annulment of the levy insofar as it relates to compensatory interest in the amount of €18,706.35.

The petition for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and automatically notified to the TA on 16 May 2017.

Pursuant to the provisions of 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 arbitrators of the Collective Arbitral Tribunal, who communicated their acceptance of the mandate within the applicable deadline, and notified the parties of such appointment on 29 June 2017.

The Collective Arbitral Tribunal was constituted on 14 July 2017; it was regularly constituted and is materially competent, in accordance with the provisions of Articles 2, paragraph 1, subparagraph a), 5, 6, paragraph 1, and 11, paragraph 1, of the RJAT (as amended by Article 228 of Law No. 66-B/2012, of 31 December).

Pursuant to paragraphs 1 and 2 of Article 17 of the RJAT, the TA was notified on 14 July 2017 to submit a response.

The TA presented its Response on 29 September 2017, together with the Administrative File.

In that Response the TA alleges, in summary, the total lack of merit of the Claimant's petition.

By order of 5 October 2017 the holding of the meeting provided for in Article 18 of the RJAT was dispensed with and a deadline for the parties' submissions was set.

The same Arbitral Order of 5 October 2017 established 30 November 2017 as the deadline for the rendering and notification of the arbitral decision.

The Respondent presented on 9 October 2017 a Motion in which it communicated the waiver of submissions, reiterating what was stated in its Response and reserving the right to respond to any new question raised by the Claimant in its submissions.

The Claimant presented on 24 October 2017 its written submissions.

The proceeding contains no defects and no preliminary or subsequent questions of a prejudicial or exceptional nature were raised that would prevent consideration of the merits of the case, and the conditions for rendering a final decision are present.

The TA proceeded to appoint its representatives in the proceedings and the Claimant filed a power of attorney, with the parties thus being properly represented.

The parties have legal personality and capacity and have standing, pursuant to Articles 4 and 10, paragraph 2, of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

II – Basis: the facts

II.A. Facts considered proven and relevant to the decision

As a Pension Funds Management Company (hereinafter "PFMC"), the Claimant is an institution dedicated to the constitution, administration, management and representation of Pension Funds, pursuant to Articles 32 et seq. of Decree-Law No. 12/2006, of 20 January (amended and republished by Law No. 147/2015, of 9 September).

The Claimant charges the Pension Funds it manages commissions that remunerate its management and administration services.

The Claimant was subject to a tax inspection action by the Directorate of Finance in Lisbon (accredited by Service Order OI2016...), concluded by a Final Tax Inspection Report (hereinafter "FTIR"), following which a correction was decided, after prior hearing of the Claimant (requested by official letter No. ..., of 21 November 2016), in connection with SD, as it was considered that these management commissions relate to financial services subject to SD pursuant to Item 17.3.4 of the General Table of Stamp Duty (hereinafter "GTSD").

As a result of that correction, the Claimant received the notice of levy of SD and compensatory interest No. 2016..., relating to fiscal year 2015, in the total amount of €350,590.28, with a voluntary payment deadline ending on 20 February 2017.

The Claimant did not make that payment and to prevent the continuation of the respective enforcement proceeding No. ...2017..., it constituted, on 24 March 2017, a bank guarantee in the amount of €443,251.80.

The Claimant presented its petition for arbitral pronouncement on 29 April 2017.

II.B. Facts considered unproven

Based on the documentary evidence made available in the proceedings and consensually accepted by the parties, nothing relevant to the decision of the case remained unproven.

III – Basis: the law

III.A. Position of the Claimant

The Claimant contends that the amount of €350,590.28 in SD and compensatory interest was not owed, levied as a result of the correction made in connection with SD.

This is because the Claimant contests that correction, which resulted from the inspection action, and in particular the understanding underlying it, namely that management commissions relate to financial services subject to SD pursuant to Item 17.3.4 of the GTSD.

This understanding would be based on Information No. I2014... of the DSIMT (Department of Services for the Municipal Tax on Transfers of Real Property, Stamp Duty, Unique Circulation Tax and Special Contributions), of 10 November 2014, and on Opinion No. 25/2013 of the Tax and Customs Studies Center.

But, the Claimant contends, this understanding conflicts with the administrative doctrine in force within the TA regarding the subject matter under analysis, set forth in a Dispatch of the Deputy General Director of Taxes, of 17 March 1999.

Focusing first on the legal framework, and specifically on the analysis of Article 7, 1, e) of the Code of Stamp Duty (hereinafter "CSD"), the Claimant understands that, of all possible interpretations of the provision (in the form given by Law No. 107-B/2003, of 31 December), none supports the additional restriction that the TA seeks to apply to it, namely that the exemption covers only commissions charged for credit granting operations, excluding management or administration commissions charged by pension fund management entities.

This is because the reference to commissions is separated from the reference to the use of credit by the expression "and likewise", meaning that the regime applies to commissions, even when not related to the use of credit granted by credit institutions.

Subsequently analyzing Item 17 of the GTSD, the Claimant recalls that it lists the financial operations referred to in Article 7, e) of the CSD, and in its understanding the evolution of the exemption rule (that is, the successive forms of Item 17 of the GTSD) has adapted to the evolution of the rule of taxability (that is, the successive forms of Article 7, 1, e) of the CSD), which, it infers, would reinforce the broad interpretation of the scope of exemption that it adopts.

The Claimant alleges that the information and opinion upon which the decision to correct the levy was based did not adequately consider the normative evolution, and therefore rest on the presupposition that a regime is in force (that of the former Article 6, 2, of the CSD, which excluded from exemption operations only indirectly related to credit granting by financial institutions, and which was repealed long ago, in particular by Law No. 32-B/2002, of 30 December, and by Law No. 107-B/2003, of 31 December).

The Claimant recalls that the initial form of Article 6 of the CSD (current Article 7) pointed to a broad regime of exemptions, not distinguishing between operations directly and indirectly related to credit granting by financial institutions; and that it was only temporarily that such distinction was introduced, established by Article 37, 2 of Law No. 30-C/2000, of 29 December, but soon after eliminated by Article 30 of Law No. 32-B/2002, of 31 December.

It would thus have been restored that broad exemption in Article 7, 1, e) of the CSD, namely the one that applies to all commissions relating to financial services, charged between financial institutions, thus encompassing commissions relating to financial services charged to Pension Funds by PFMCs. This would also imply the integration of such operations within the objective scope of Item 17.3.4 of the GTSD.

The Claimant further emphasizes that the broad interpretation derives from the equation, to financial institutions, of pension fund management entities, operated by Directive 2003/41/EC, of the European Parliament and of the Council, of 3 June 2003 – a normative framework to which Portuguese tax law has adapted.

The Claimant alleges that the introduction of a new paragraph 7 to Article 7 of the CSD (by Law No. 7-A/2016, of 30 March) reinforces its understanding of the applicable regime, because, by establishing the "interpretive character" of that new restrictive form of Article 7 of the CSD (by virtue of Article 154 of Law No. 7-A/2016, of 30 March), the principle of non-retroactivity (enshrined in Article 103, 3 of the Constitution) was violated and the principle of trust and legal certainty was harmed, which makes unacceptable the attempt to restore – with retroactive effect – a norm that had ceased to apply on 1 January 2003.

After analyzing the legal framework, the Claimant directs its arguments at the orientation adopted in the Dispatch of the Deputy General Director of Taxes, of 17 March 1999, and which, in its understanding, is now being violated, in breach of the principle, enshrined in Article 68-A of the General Tax Law, of the TA's adherence to its own general orientations (to which the Claimant attaches a very broad meaning, which extends beyond the mere scope of circulars and regulations) – which, it contends, would constitute an autonomous ground for illegality of the tax act in which such violation would be consummated.

Arguing that the general orientations published by the TA do not lapse and remain in force until their revocation, which only operates for the future, the Claimant infers that every interpretation that conforms to those general orientations, while they are in force, has a presumption of plausibility and good faith in its favor, and it is therefore not required of the taxpayer any demonstration other than that of such conformity.

Now, the Claimant alleges, the Dispatch of the Deputy General Director of Taxes, of 17 March 1999, widely publicized in the financial sector, conveyed that management commissions charged by PFMCs are not covered by the taxability of SD – and this general orientation, not having been revoked, continues in force, the Claimant contending that not even the change in legislation substantially altered the reality to which that general orientation of 1999 referred.

The Claimant recognizes that mere management of pension funds does not materially constitute any financial service, even when the subjective element could suggest otherwise (because the management might eventually be carried out by a credit institution or by a financial company).

By a fortiori, it infers that the management of pension funds is not a financial service, even though PFMCs are qualified as financial institutions. For the Claimant, PFMCs are financial companies because they represent the Funds, but not in function of the services they provide, and specifically the management of pension funds is not considered, even for statistical purposes, a financial service.

This, in the Claimant's understanding, makes even less sustainable the inflection operated by Opinion No. 25/2013 of the Tax and Customs Studies Center, which, contrary to the general orientation set out in the Dispatch of the Deputy General Director of Taxes, of 17 March 1999, seeks to extend the taxability of SD to services that, while not materially financial, nevertheless maintain a connection with a financial activity, as is the case with auxiliary activities such as pension fund management.

This, the Claimant contends, will only apply to operations of PFMCs that have correspondence with some type of taxability in Items 17.3.1 to 17.3.4 of the GTSD, as would be the case with credit granting and corresponding collection of interest, or the provision of guarantees and corresponding collection of commissions.

Not so the collection of commissions as consideration for mere management activity, which the Claimant insists are not commissions relating to financial services, as will have been established by the Dispatch of the Deputy General Director of Taxes, of 17 March 1999.

Subsidiarily, the Claimant puts forward another argument: that, even if the referred commissions were legitimately considered as relating to financial services, they should nevertheless be considered exempt by virtue of Article 7, 1, e) of the CSD, because they are charged and collected between financial institutions – insisting that PFMCs are financial institutions, notwithstanding Article 6, 3 of Decree-Law No. 298/92, of 31 December (General Regime for Credit Institutions and Financial Companies) expressly establishing the contrary – because, in the Claimant's understanding, this exclusion is valid only for the purposes of the application of that specific statute, so much so that it is contradicted by the characterization of the PFMC as "institutions" by Directive 2003/41/EC, of the European Parliament and of the Council, of 3 June 2003, transposed by Decree-Law No. 12/2006, of 20 January.

On the other hand, the non-extension to PFMC management commissions of the exemption regimes provided for in Decree-Law No. 20/86, of 13 February, and in Decree-Law No. 1/87, of 3 January, permits the Claimant to infer that this apparent omission is in fact due to the legislator's recognition of the non-financial nature of the services provided in the management of Pension Funds: not being, therefore, those services subject to SD, there was no need to expressly establish the respective exemption.

Indeed, the Claimant adds, to understand it otherwise would be to violate the principle of neutrality, because, if management commissions charged by PFMCs were to be taxed in SD, this would constitute an incentive for the outsourcing of management operations to third parties, with respect to which the possibility of SD taxability would no longer arise.

The Claimant further considers the implications of the EU framework applicable to pension funds and their management companies, concluding that in this area the latter are considered as capital companies, with the rules of the internal capital market applying to them, and specifically the prohibition of any indirect taxation on capital inputs.

Concluding its Petition, the Claimant claims compensation for the amounts spent on the constitution of the bank guarantee, plus indemnity interest, under the terms and on the grounds of Articles 43 and 55 of the General Tax Law and Article 171 of the Code of Tax Procedure (and further condemnation "in costs and in appropriate attorney's fees").

Subsidiarily, and in the event that it is concluded that there is no exemption, the Claimant claims that no compensatory interest should be required, due to the lack of the element of culpable fault that is attributable to its conduct, annulling the levy of the respective amount, of €18,706.35.

In its submissions, the Claimant reiterates, in essence, the arguments already put forward in its Petition for Arbitral Pronouncement.

It reiterates that the claims of the Respondent rest on legislation expressly repealed – specifically Article 37, 3 of the State Budget Law of 2001, repealed by the form given to Article 6 (current 7) of the CSD by Article 30 of Law No. 32-B/2002, of 30 December (State Budget Law of 2003); which, in the Claimant's understanding, would have restored the regime prior to Law No. 30-C/2000.

It reiterates that it considers unconstitutional, for violation of the principle of non-retroactivity of tax law and for violation of the principle of trust, Articles 152 and 154 of the State Budget Law of 2016, by adding a new paragraph 7 to Article 7 of the CSD, by providing that the form of this paragraph 7 of Article 7 of the CSD has an interpretive character, and by thereby creating a tax burden that could not be foreseen and upon which reliance could not be placed.

It reiterates that there is a contradiction with the general orientation adopted in the Dispatch of 17 March 1999 of the Deputy General Director of Taxes (which understood that management commissions charged by PFMCs were not covered by the taxability of SD, and which the Claimant contends is still in force, because it has not been repealed and is compatible with all subsequent legislation), thereby violating the provisions of Article 68-A of the General Tax Law.

III.B. Position of the Respondent

In its response, the TA maintains the understanding that the levies at issue constitute a correct application of the law, suffering from no defect, whether by violation of law or of the law of the European Union itself.

The Respondent begins by refuting the understanding that there is a non-taxability of the operations through the qualification of the operations in question, or that, if there is taxability, the exemption contained in Article 7 of the CSD applies.

The Respondent refers to the conclusions of the FTIR, in which it was already demonstrated that, as the operations in question are not subject to VAT [pursuant to Article 9, 27, g) of the VAT Code], SD applies to them by mere interpretation of paragraphs 1 and 2 of Article 1 of the CSD (it being known that the first requirement for the objective taxability of SD is non-subjection to VAT, given the concurrence of the two taxes).

A rate of 45% of SD provided for in Item 17.3.4 of the GTSD thus applies.

And the application to the case of the exemptions provided for in Article 7, 1, e) of the CSD is not sustainable, especially because, to dispel all doubts and controversies, the legislator inserted a new paragraph, paragraph 7, in Article 7 of the CSD, with an interpretive character, and which, by more precisely defining the scope of the exemptions, clearly excludes from them the situation in question.

On the other hand, the Respondent notes that, by seeking to discuss the characterization of the operations in question as financial operations, the Claimant becomes entangled in contradictions: because on one hand it accepts and invokes its qualification as a financial institution, but does not want thereby to meet the objective and subjective requirements that, within the framework of Item 17.3.4 of the GTSD, determine taxability without exemption.

Now, the Respondent insists, the nature of financial institution, which the Claimant does not question, applies in full, to the case, the combination of Article 1 of the CSD with Items 17.3 and 17.3.4 of the GTSD.

The Respondent recalls that Article 3, 1, f) of Law No. 25/2008, of 5 June [now Article 3, 1, j) of Law No. 83/2017, of 18 August], provided that PFMCs were financial entities.

The Respondent also recalls that, for the purposes of Article 2-A, z), ii) of the RGICCSF (Decree-Law No. 298/92, of 31 December), PFMCs are true "financial companies", so much so that Article 6, 3 of the same statute takes the trouble to exclude them from the regime established in the statute itself (prudential regime, supervision by the Bank of Portugal) – without, however, denying its nature, which means that PFMCs closely follow the general regime of financial institutions (which, in the Respondent's understanding, is verifiable by analysis of the regime established by Decree-Law No. 12/2006).

The Respondent adduces a supplementary argument to reaffirm this nature of "financial institutions" of PFMCs: namely, that Decree-Law No. 12/2006, of 20 January, provides that the activity of PFMCs may also be carried out by insurance companies in the "life" branch that have an establishment in Portugal; and, as to these, there is no doubt that they are financial institutions, as results from Article 8 of Decree-Law No. 94-B/98, of 17 April.

The Respondent multiplies the examples of norms of European Union law that qualify as financial institutions the entities that perform the functions assumed among us by PFMCs.

Beyond seeking to dispel doubts as to the financial nature of PFMCs, of the services provided by them and of the commissions charged for those services, the Respondent draws attention to the breadth of the formulation of Item 17.3 of the GTSD as a rule of taxability.

Turning to the analysis of the alleged violation of general orientations of the TA, the Respondent states that on this point too the Claimant has no reason whatsoever.

And this, firstly, both because the normative context of a fiscal and financial nature changed radically, rendering the Dispatch of the Deputy General Director of Taxes, of 17 March 1999, outdated; and because, in the Respondent's understanding, such Dispatch does not constitute any general orientation emanated from the TA, only meriting this qualification those that are currently listed in Article 68-A of the General Tax Law, and which all aim to standardize legal interpretations.

The Respondent contends that this Dispatch, far from aiming at this objective, sought only to provide a response to a situation in which what was at issue were, not commissions charged by the manager and administrator of pension funds (a PFMC), but only commissions charged by the depository of those funds (a Bank). The response contained in the Dispatch was not even converted into an Administrative Circular, which, pursuant to Article 68-A, 3, of the General Tax Law, demonstrates the lack of intention to formulate a general orientation.

There was merely, the Respondent infers, only a binding ruling, moreover relating to a situation distinct from that now in question; and that binding ruling lapsed pursuant to Article 68, 14, of the General Tax Law, specifically at the moment of the legislative amendment that brought into force the current GTSD.

Turning to the analysis of the argument that exemption rules applicable were violated, here too the Respondent states that the Claimant has no reason whatsoever.

The Respondent begins by underlining the Claimant's insistence in the arbitral petition (but also, before, in the hearing in the inspection proceeding) in the applicability of exemption rules – which of itself already implies the recognition that the operations fall within the taxability rules, for otherwise the question of possible exemption would not even arise.

Specifically, the invocation, by extensive interpretation, of the exemption provided for in Article 4 of Decree-Law No. 20/86, of 13 February, is not sustainable, because what is at issue there is only the exemption of investment funds, a reality quite different that would not permit the analogy – prohibited by the exceptional character that exemptions and benefits bear within the general framework of taxation [Article 10 of the Framework Law on Benefits].

The Respondent also objects to the idea that the commissions in question would fall within the exemption rule contained in Article 7, 1, e) of the CSD, given that what is envisaged in that provision is only financial operations directly aimed at credit granting, and not any others (it being apparent from the legal framework that the exemption only covers realities – interest, commissions – in which the prior granting of credit is presupposed).

For that same reason, the Respondent adds, the TA has never issued any general orientation on the interpretation of Article 7, 1, e) of the CSD.

The Respondent further enumerates various jurisprudence of superior courts that converges with its own interpretation, particularly with respect to the restriction of SD exemption to commissions charged exclusively in consideration of credit granting.

The Respondent further adds, in support of its understanding, the addition, with interpretive character, of paragraph 7 to Article 7 of the CSD (by Law No. 7-A/2016, of 30 March), which clarifies this restriction of exemption to operations directly connected with credit granting – with the "interpretive character" (for purposes of Article 13 of the Civil Code) intended to establish that this has always been the meaning of the norm.

Meaning this, as the Respondent stresses, that an interpretive law is not retroactive, since it merely clarifies what was already in the norm being interpreted, adding nothing to it, since any innovation would exceed what could be accepted as merely "interpretation".

Turning to the analysis of the argument that European Union law was violated, again the Respondent states that the Claimant has no reason whatsoever, particularly when it asserts that a purported prohibition of indirect taxes on PFMCs was violated, which would result from the combination of Article 5, 1, a) of Directive 2008/7 EC with Directive 2003/41/EC – since no parallelism is seen between taxation of capital inputs in a capital company (which is what is prohibited by those Directives) and taxation of commissions charged for pension fund management, which is the reality now in question.

The Respondent does not see that there is ground for requesting compensation for undue guarantee (plus indemnity interest), to the extent that, in its understanding, no error or defect occurred that could lead to the annulment of the acts of levy at issue (and even if some doubt had arisen regarding the unconstitutionality of the new paragraph 7 of Article 7 of the CSD, the TA, as an organ of the Public Administration, would not have competence to refrain from applying, on that ground, that norm or any other pertinent norms).

Moreover, the Claimant did not even indicate the amount of the costs in which it incurred to contract the bank guarantee.

Even less does the Respondent see ground for indemnity interest, because pursuant to Articles 53, 100 and 43 of the General Tax Law, and in accordance with firm jurisprudence in the Supreme Administrative Court, compensation for costs supported with the provision of an undue guarantee does not entail the payment of any other amounts.

Likewise, the Respondent does not see grounds for the subsidiary request made by the Claimant, as regards the annulment of compensatory interest, because the interpretation on which the Claimant says it based itself to have delayed its obligation to pay the levy seems implausible (namely the interpretation that gave, as applicable to the case by way of a general orientation, the Dispatch of the Deputy General Director of Taxes, of 17 March 1999).

The Respondent concludes its Response by observing that there is no legal support whatsoever for the claim, made by the Claimant, of a condemnation, in arbitral proceedings, in costs of party or in attorney's fees.

Beyond the lack of merit of the petition, subsidiarily the Respondent requests that, in the event that the argument of unconstitutionality for violation of the principle of non-retroactivity of tax law and for violation of the principle of trust is to proceed, because the addition of paragraph 7 to Article 7 of the CSD is not accepted as having an interpretive nature, the Attorney General's Office be notified of the Arbitral Decision, under the terms and for the purposes of Article 280, 3 of the Constitution and Article 72, 3 of the Law of the Constitutional Court (Articles 238 to 240 of the Respondent's Response).

III.C. The Law

Questions to be decided

From the Report it follows that the matter of law comprises the following questions to be decided:

First, it is important to clarify the tax treatment of commissions charged for the management of pension funds. It is necessary to determine, in hermeneutic terms, the semantic content of Item 17.3 of the General Table of Stamp Duty, with the objective of clarifying the legal nature of pension fund management companies and ascertaining whether the management commissions charged by management companies to their respective pension funds are subject to Stamp Duty. A positive answer to this question refers to the second question, which concerns whether such commissions benefit from the exemption provided for in Article 7, paragraph 1, subparagraph e), of the Code of Stamp Duty.

A third question raised in the proceedings consists of ascertaining the meaning and scope of the norm of paragraph 7 added to Article 7 of the CSD by Article 152 of Law No. 7-A/2016, of 30 March (State Budget Law 2016). At issue is the alleged interpretive nature that Article 154 of this law ascribes to this paragraph 7 and the conformity with the Constitution of the Portuguese Republic of the retroactive effects that would allegedly result from it. Also raised is the question of whether the taxation in connection with Stamp Duty of management commissions charged by PFMCs to Pension Funds violates the provisions of Directive 3008/7/EC and Directive 2003/41/EC. Finally, the question arises of whether the Claimant is entitled to compensation for the guarantee provided.

It should be noted that it has long been the understanding of jurisprudence that courts do not have to consider all arguments formulated by the parties (See inter alia, Award of the Plenary of the 2nd Section of the Supreme Administrative Court, of 7 June 1995 - Appeal No. 5239, in Official Journal/Appendix of 31 March 1997, pp. 36-40 and Award of the Supreme Administrative Court, of 23 April 1997 in Official Journal/Appendix, of 9 October 1997, p. 1094.

Considering the aforementioned questions:

1. Pension Fund Management Companies and Item 17.3

The first of the questions to be decided refers to the interpretation of Item 17.3 of the General Table of Stamp Duty (GTSD), where the taxability of this tax (SD) is established concerning "[o]perations carried out by or with the intermediation of credit institutions, financial companies or other entities legally equated to them and any other financial institutions [...]". According to the provisions of Sub-item 17.3.4 of the GTSD, SD is levied on the amount charged as "other commissions and considerations for financial services" at a rate of 4%.

It is in this context, of determining the taxability of SD under Item 17.3 of the GTSD, that the discussion regarding the legal nature of pension fund management entities is pertinent. It depends on the question of whether they fall within the subjective taxability of Item 17.3. It is unavoidable, at this point, to determine the semantic content of the formulation "credit institutions, financial companies or other entities legally equated to them and any other financial institutions" of Item 17.3. To carry out this methodological operation, Article 11, paragraph 2 of the General Tax Law (GTL) offers an important point of support, by providing that "whenever, in tax norms, terms proper to other branches of law are employed, they must be interpreted in the same sense that they have therein, unless otherwise directly follows from the law."

In light of this provision, it is necessary to analyze Article 6 of the General Regime for Credit Institutions and Financial Companies (RGICCSF). There are enumerated the types of financial companies, excluding "for purposes of this statute", "financial companies as insurance companies, pension fund management companies and investment funds (real estate and securities)" (Article 6, paragraph 3 of the RGICCSF). From this provision it follows that the RGICCSF is not applicable to PFMCs. However, this alone does not prevent them from being considered "financial companies" for other purposes. Article 6 of the RGICCSF does not have a doctrinal concern with exhaustive determination of the connotation and denotation of the concepts of financial company or financial institution, but rather with delimiting the scope of application of the general regime in question. Indeed, as has been noted by previous arbitral jurisprudence, we can find financial institutions or financial companies beyond the scope of application of the RGICCSF. This can be confirmed by examining various statutes.

The Regulation (EU) No. 575/2013 of the European Parliament and of the Council, of 26 June 2013 (on prudential requirements for credit institutions and investment firms) provides in Article 4, paragraph 1 § 26, that a financial institution is characterized as "an undertaking which is not an institution, whose main activity is the acquisition of holdings or the exercise of one or more of the activities listed in Annex I, points 2 to 12 and 15, of Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution within the meaning of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market, and an asset management company, but excluding insurance holding companies and mixed insurance holding companies within the meaning of Article 212, paragraph 1, point g) of Directive 2009/138/EC".

For its part, § 27 of the same Article 4, paragraph 1 of this Regulation (EU) No. 575/2013 considers "financial sector entity": "a) An institution; b) A financial institution; c) An auxiliary services enterprise included in the consolidated financial situation of an institution; d) An insurance undertaking; e) An insurance undertaking of a third country; f) A reinsurance undertaking; g) A reinsurance undertaking of a third country; h) An insurance holding company; [...]".

Under this Regulation, an insurance holding company is part of the concept of "financial sector entity".

As follows from Article 13, paragraph 25, of Directive No. 2009/138/EC, of the European Parliament and of the Council, of 25 November 2009, relating to the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) (recast), "financial institution" means any of the following entities: "a) A credit institution, a financial institution or an auxiliary banking services undertaking, within the meaning respectively of points 1, 5 and 21 of Article 4 of Directive 2006/48/EC; b) Insurance undertakings, reinsurance undertakings or insurance holding companies within the meaning of point f) of paragraph 1 of Article 212; c) An investment firm or a financial institution within the meaning of point 1 of paragraph 1 of Article 4 of Directive 2004/39/EC; d) A mixed financial holding company within the meaning of point 15 of Article 2 of Directive 2002/87/EC".

Thus, under Directive No. 2009/138/EC, insurance holding companies are qualified as financial institutions.

For its part, and this point is of particular relevance to the question of law in issue, Directive 2003/41/EC of the European Parliament and of the Council, of 3 June 2003, relating to the activities and supervision of institutions for occupational retirement provision, points to the qualification of these entities as financial institutions, in a broad sense. In this sense, it points clearly to, through the preamble references (i) to the creation of an "internal market in financial services" with a view to allowing "financial institutions to develop activities in other Member States and ensuring a high level of consumer protection for users of financial services" (Recitals 1 and 2); (ii) to the desirability of "the development of a directive on the prudential supervision of institutions for occupational retirement provision, since these important financial institutions, which have a key role to play in the integration, efficiency and liquidity of financial markets, are not subject to a coherent Community legislative framework allowing them to take full advantage of the advantages of the single market" (Recital 4); (iii) to institutions for occupational retirement provision as "providers of financial services" (Recital 20).

Decree-Law 12/2006, of 20 January (subsequently republished by Law No. 147/2015, of 9 September) transposed this Directive into the Portuguese legal order, having adopted the regime for the constitution and functioning of pension funds and their respective management companies. Article 32, paragraph 1, of this statute provides that "[p]ension funds may be managed either by companies constituted exclusively for that purpose, designated in the present decree-law as management companies, or by insurance companies that legally operate the 'Life' branch and have an establishment in Portugal".

Immediately following, Article 33 of the same normative instrument provides that "[i]n its capacity as administrator and manager of the fund and its legal representative, the managing entity shall have competence to carry out all acts and operations necessary or convenient for the proper administration and management of the fund, in particular: a) To proceed with the assessment of the fund's liabilities; b) To select and negotiate the securities, real estate or other assets, which should constitute the fund, in accordance with investment policy; c) To represent, independently of a mandate, the members, participants, contributors and beneficiaries of the fund in the exercise of rights arising from their respective stakes; d) To proceed with the collection of contributions provided for and to ensure, directly or indirectly, the payments due to beneficiaries; e) To proceed, with the agreement of the beneficiary, with the direct payment of charges owed by that party and corresponding to those referred to in paragraph 4 of Article 6, through the deduction of the respective amount from the pension in payment; f) To register in the land register, in the name of the fund, the real estate that forms part of it; g) To keep in order its records and those of the funds managed by it".

It follows from the articles cited above that PFMCs approach, from the perspective of the formal and material requirements of their activity, management companies that act in the insurance and reinsurance sector. The powers of PFMCs point clearly, as has been understood by previous arbitral jurisprudence, to the exercise of an activity that is materially financial, which cannot fail to be considered relevant, considering the principles of the prevalence of substance over form and material equality. The Final Tax Inspection Report is thus correct in characterizing the A..., here Claimant, as a pension fund management company, governed by the provisions of Decree-Law No. 12/2006, of 20 January, which regulates the constitution and functioning of pension funds and pension fund management entities and transposes into the national legal order Directive No. 2003/41/EC, of the European Parliament and of the Council, of 3 June, relating to the activities and supervision of institutions for occupational retirement provision.

It is also worth recalling in this regard that Article 30, paragraph 1, subparagraph e), of the Securities Code (SC) includes in the list of institutional investors "pension funds and their respective management companies", which, in the context of activities relating to financial instruments, are subject to supervision by the CMVM [Article 359, paragraph 1, subparagraph d), of the SC], without prejudice to the subjection of those same entities to supervision by the Insurance and Pension Funds Supervisory Authority (IPSFA). It is the material elements collected that must be taken into consideration at the moment of application of Item 17.3 of the GTSD, in whose literal content reference is made to "[...] financial companies or other entities legally equated to them and any other financial institutions [...]".

The conclusion should accordingly be accepted that the commissions charged by PFMCs to their respective funds are subsumed within the taxability of SD, both on the objective and subjective planes. This is so, to the extent that Item 17.3 of the GTSD provides for the taxation of "operations carried out by or with the intermediation of credit institutions, financial companies or other entities legally equated to them and any other financial institutions", with sub-item 17.3.4 determining that included therein are "other commissions and considerations for financial services". At both poles of the legal relationship we find subjects comprised within the conceptual and semantic field of sub-item 17.3.2.

In light of the foregoing, and accepting on their argumentative merits, the orientation that had already been affirmed in the awards rendered in the arbitral proceedings No. 348/2016-T, of 2 May 2017, No. 633/2016-T, of 19 May 2017 and No. 667/2016-T, of 20 June 2017, it is sustained that the understanding that PFMCs meet the subjective element of the type "any other financial institutions", provided in Item 17.3 of the GTSD.

1. The exemption of Article 7, paragraph 1, subparagraph e) of the CSD

It is necessary to proceed to the treatment of the second question to be decided, concerning the interpretation and application of the exemption contained in Article 7, paragraph 1, subparagraph e), of the Code of Stamp Duty. The relevant form, which was in force at the date of the facts, was introduced by Law No. 107-B/2003, of 31 December. It provides: "1 - Are also exempt from the tax: [...] e) Interest and commissions charged, guarantees provided and likewise, 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 meet the types of credit institutions, financial companies and financial institutions provided for in Community law, all of them domiciled in Member States of the European Union or in any State, with the exception of those domiciled in territories with a privileged tax regime, to be defined by decree of the Minister of Finance; [...]"

Accepting, on their substantive merits, the orientation adopted by the arbitral awards rendered in proceedings No. 348/2016-T, of 2 May 2017, No. 633/2016-T, of 19 May 2017, No. 667/2016-T, of 20 June 2017 and, likewise, No. 9/2017-T, of 30 August, it is emphasized that the exemption provided for in subparagraph e) of paragraph 1 of Article 7 of the CSD assumes a dual dimension, subjective and objective.

The considerations previously developed regarding the legal nature of PFMCs allow the application of the norm contained in subparagraph e) of paragraph 1 of Article 7 of the CSD to the case in question to be grounded. On one hand, PFMCs, as has already been clarified, integrate the concept of "financial institution", understood in a material sense. As for pension funds, subparagraph c) of Article 2 of Decree-Law No. 12/2006, in the form in force at the date of the facts, provided that they consist of "assets held separately and exclusively for the realization of one or more pension plans and or health benefits plans", and can be qualified as "venture capital companies, as well as companies or entities whose form and object meet the types of credit institutions, financial companies and financial institutions [...]".

Pension funds, as occurs with their respective management companies, are considered institutional investors by the Securities Code [Article 30, paragraph 1, subparagraphs e) and f)]. The qualification of pension funds as "financial institutions" also results from paragraph 4 of Article 32 of Decree-Law No. 12/2016, which provides that "[t]he managing entities carry out all their acts in the name and on behalf jointly of the members, participants, contributors and beneficiaries and, in their capacity as administrators of the funds, may negotiate securities or real estate, make bank deposits in the name of the fund and exercise all rights or carry out all acts that directly or indirectly are related to the fund's assets". It is thus concluded that pension funds integrate the broad concept of "financial institutions", in the same manner as their respective management companies.

As for the objective scope of the norm of subparagraph e) of paragraph 1 of Article 7 of the CSD, matters appear less straightforward. The question arises here of whether the scope of the norm contained in subparagraph e) of paragraph 1 of Article 7 of the CSD is restricted, or not, to operations and services typically banking in nature, from which would be excluded commissions charged by pension fund management entities to their respective funds.

Legal hermeneutics, as the art of understanding, recognizes that the interpretation of a legal norm cannot be carried out in an acontextual manner. On the contrary, it requires that the interpreter be in possession of multiple relevant sub-pieces of information. Because it is so, it is important to pay special attention to the succession of norms in time and to the specific modifications that have been introduced in their literal content.

It is important to bear in mind that the original version of Article 6 (current 7) of the CSD, approved by Law No. 150/99, of 11 September, provided as follows:

"1 - Are also exempt from the 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 meet the types of credit institutions and financial companies provided for in Community law, all of them domiciled in Member States of the European Union, or in any State complying with the principles deriving 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 meet the types of credit institutions provided for in Community law, domiciled in Member States of the European Union, or in any State complying with the principles deriving from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997;"

This version nevertheless provided a limitation, as follows: "2 - The provisions of subparagraphs f) and g) do not apply when any of the parties does not have its head office or actual place of management in national territory."

Article 37 of Law No. 30-C/2000, of 29 December (State Budget Law 2001), introduced a new paragraph 2 to Article 6 (the then paragraph 2 becoming paragraph 3), where it was established that: "2 – The provisions of subparagraphs e) and f) apply only to financial operations directly aimed at credit granting, in the context of the activity carried out by the institutions and entities referred to in those subparagraphs".

Two years later, Article 30 of Law No. 32-B/2002, of 31 December (State Budget Law 2013), deleted paragraph 2 of Article 6, bringing the effects of the respective norm to an end in the legal order. In this way the limitation of the exemption to operations directly aimed at credit granting, in the context of the activity carried out by the entities referred to in subparagraphs e) and f) of paragraph 1 of Article 6, was eliminated. This is, indisputably, hermeneutically relevant information.

Following the elimination of paragraph 2, paragraphs 3 and 4 of the form were renumbered, becoming paragraphs 2 and 3. In this way, the legislator proceeded, through Article 30 of Law No. 32-B/2002, of 31 December, to the repeal of paragraph 2 of Article 6, which had been introduced by Article 37 of Law No. 30-C/2000, of 29 December. Through Article 30 of Law No. 32-B/2002, of 31 December, the legislator merged the previous subparagraphs e) and f), which gave rise to a new form of subparagraph e).

This came to exempt from SD "[i]nterest and commissions charged and likewise, 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 meet the types of credit institutions and financial companies provided for in Community law, all of them domiciled in Member States of the European Union, or in any State, with the exception of those domiciled in territories with a privileged tax regime to be defined by decree of the Minister of Finance".

In 2003, Decree-Law No. 287/2003, of 12 November, was published, in the context of the tax reform, and the CSD was amended and republished. Subparagraph e) maintained the form given by Article 30 of Law No. 32-B/2002, of 31 December, integrating Article 7, paragraph 1 and not Article 6. The form in force at the date of the facts was stabilized by Law No. 107-B/2003, of 31 December, as referred to at the beginning of this section.

Thus, and as stated in the awards rendered in the arbitral proceedings No. 348/2016-T, of 2 May 2017, No. 633/2016-T, of 19 May 2017, No. 667/2016-T, of 20 June 2017 and, also, No. 9/2017-T, of 30 August, the reason for the merger of the subparagraphs was not connected with the incorporation into the new subparagraph e) of paragraph 1 of the expressly repealed paragraph 2 of Article 6, but rather with the standardization of the requirements for the exemption from stamp duty of credit granted and interest charged with those of commissions charged in operations in which the only parties were credit institutions and financial companies. This is the meaning that immediately follows from the amendments introduced. The successive legislative amendments appear to reflect an intention to defer the taxation of credit granting and financial services to the moment of their acquisition by end consumers, in accordance with a logic of business-to-consumer (B2C) type. Regardless of whether this reading corresponds to the authentic intention of the legislator, the truth is that, as the Claimant alleges (see § 64 of the initial petition), the same was not questioned in successive inspections subsequently conducted of credit institutions. This last aspect cannot be ignored in an interpretative context.

We accept as meritorious the orientation followed in the referred awards when they state that the historical evolution of the provision points clearly in the direction that only in the original version and, subsequently, between the period in which the form given by Article 37 of Law No. 30-C/2000, of 29 December (which added a paragraph 2 to Article 6), was in force, did the exemption have clearly as its catalyzing element the credit granted under the terms mentioned in such normative. That is, only then was there a relationship of dependence between the exemption and the credit. With respect to commissions charged in particular, the exemption could only apply to those which had as their basis operations aimed at credit granting, by virtue of the restriction introduced in the aforementioned paragraph 2 of Article 6.

This is also the meaning derived from the letter of the provision when it uses the expression "and likewise", which, being a conjunctive phrase, means, in accordance with the principal Portuguese language dictionaries, "equally", "just as", "more", "also", "idem", "furthermore", "in the same manner", "in the same way", pointing clearly, beyond any reasonable doubt, to a coexistence characterized by autonomy and independence. That is, the exemption of interest and commissions charged is marked by autonomy and independence with the exemption of the use of credit and is subject to the same regime.

It is not legitimate to interpret the expression "and likewise" as meaning "when directly aimed at", or "when directly related to", to the extent that these latter expressions denote a relationship of subordination and dependence. Supporting this interpretation is also the fact that the expression "when directly aimed at" had been deliberately and expressly excluded by Article 30 of Law No. 32-B/2002, of 31 December (State Budget Law 2003), when it deleted paragraph 2 of Article 6.

The literal and grammatical content of subparagraph e) of Article 7 is particularly clear in this domain, there being no room to speak, with respect to the segment under analysis, of polysemy of the norm. Tax law, by the values of trust, security and legal certainty to which it is constitutionally and legally ascribed, imposes increased requirements in the domain of typicality, precision, clarity and determinability of laws. The text, with its inherent linguistic properties, continues to perform a fundamental function in the production and transmission of meaning and in the stabilization of expectations.

Indeed, except in those domains in which there is an assumed orientation to combat abuses in the areas of tax planning and base erosion and profit shifting, such as those that invoke general and specific anti-abuse clauses, the literal and grammatical element retains central relevance in tax law as a factor for creating stability, predictability and calculability. For that reason, the same is not compatible with a hermeneutic deconstruction of normative texts in terms that – devaluing linguistic statements and making equally admissible the most disparate interpretations – end up obliterating the objective linguistic function of codification and mediation of deontic meanings.

In light of the foregoing, it is concluded that the exemption provided for in subparagraph e) of paragraph 1 of Article 7 of the CSD did not restrict itself, prior to the entry into force of Law No. 7-A/2016, of 30 March, to operations directly aimed at credit granting in the context of the activity carried out by credit institutions, financial companies and other financial institutions.

1. The alleged interpretive norm introduced by the State Budget Law 2016

Law No. 7-A/2016, of 30 March (State Budget Law 2016), through its Article 152, added to the CSD paragraph 7 of Article 7, which provides as follows: "The provisions of subparagraph e) of paragraph 1 apply only to guarantees and financial operations directly aimed at credit granting, in the context of the activity carried out by the institutions and entities referred to in that subparagraph." Article 154 of the State Budget Law 2016 provides for the interpretive character of the provision cited. The legislator adopted, on this point, a legislative technique to which it has been resorting with relative frequency. In fact, the inclusion of "interpretive norms", applicable to various areas of tax legislation, is one of the distinguishing features of the State Budget Law 2016. So it happened, not only in connection with SD, but also within the scope of the Codes of PIT, CIT, Property Transfer Tax and SPT.

The figure of the interpretive law has considerable relevance in legal hermeneutics, to the extent that, pursuant to Article 13, paragraph 1 of the Civil Code, "the interpretive law becomes integrated into the interpreted law". From this follows a general regime of retroactive application of the interpretive law with ex tunc effects, that is, retroacting to the moment of entry into force of the interpreted law. However, paragraph 1 itself of Article 13 of this statute relativizes this general regime in favor of legal security and protection of trust by providing an exception for "the effects already produced by the fulfillment of the obligation, by a judgment with the force of res judicata, by settlement, even if not approved, or by acts of an analogous nature."

That is, the legislator does not fail to recognize that the interpretive law introduces innovations into the legal order, to the extent that it narrows the semantic horizon of interpretive possibilities, in terms that, taken to their logical conclusions, could put into question legal certainty, security and peace, which leads it to give way in the face of the effect of res judicata and other modalities of stabilization of expectations (e.g. chose décidée).

If this is the case with respect to the general regime of interpretive law, greater concessions to the principles of legal security and protection of trust are not excluded in special domains of law (e.g. restrictions on rights, freedoms and guarantees, criminal law, tax law) in which constitutional requirements of certainty and security acquire special intensity, particularly given, in the case of tax law, the establishment of an express prohibition of retroactivity in Article 103, paragraph 3 of the Constitution.

This aspect is particularly important to the extent that interpretive laws are never absolutely neutral from a semantic point of view. Just as in quantum physics the simple act of observing an object interferes with that object being observed, so in the legal order the approval of an interpretive law interferes with the meaning of the interpreted law. The measure of interference produced by the interpretive law must be substantively analyzed and evaluated from the perspective of the matters on which it bears, of the beneficial or harmful effects it produces on its addressees and of the disturbance it causes to the constitutional principles that structure the legal system.

In addition, in the qualification of a law as interpretive the nomen iuris is not absolutely decisive. There may be laws self-qualified as interpretive that turn out to be innovative, possibly proposing a meaning incompatible with the interpreted law. Similarly, it is equally true that not all interpretive laws can be treated equally. There are meanings proposed by interpretive laws that are represented as more or less proximate to the literal content of the interpreted text and others that will hardly be compatible with it. Similarly, some are more harmful or more beneficial in their interference with the rights or interests of their addressees. All of this should be evaluated and weighed in concreto, in accordance with a contextual approach.

Now, in the domain of the CSD, the legislator did not limit itself to clarifying the interpretive meaning of a norm in force. Differently, as follows from the considerations previously developed, the interpretive norm contained in paragraph 7 of Article 7 of the CSD bears an innovative character in relation to the legal regime previously in force. With the aggravating circumstance that this interpretive norm exhumed a meaning which, having interrupted a period of non-taxation of stamp duty of commissions charged for pension fund management, had as its basis only the short duration in force of paragraph 2 of Article 6 of the CSD (ex vi Article 37, paragraph 2 of Law No. 30-C/2000), until its elimination by Article 30 of Law No. 32/2002, about 13 years before the approval of Article 154 of the State Budget Law 2016. Also here in the presence of relevant sub-information in hermeneutic terms, with significance from the perspective of the regularity of state action and the stabilization of expectations based on investments (investment backed expectations).

In the domain of tax law, it is not admissible that the spirit of repealed laws can come to haunt the interpretation and application of the tax legal regime introduced alongside the repealing norms during the period of their respective duration – even through the mediumistic invocation by some courts – and end up reincarnating, some years later, in the body of a purported interpretive law. Recourse to this legislative technique would inevitably put into question the transparency and accessibility that should characterize the legal norms that guide the conduct of economic operators, harming tax legality and the legal security and protection of trust of citizens, which appear as sub-principles of the principle of the rule of law.

To understand what is really at issue in the concrete case, it is important to underscore, in the manner of an intermediate result (Zwischenergebnis), that we are here before a supposed interpretive law that a) reintroduces into the legal order a normative meaning devoid of any literal and grammatical support in the interpreted law; b) that meaning would correspond expressly and unequivocally to the literal content of a provision already eliminated; c) that elimination occurred about 13 years before the approval of the supposed interpretive law; d) during that time the management commissions charged by PFMCs were exempt from SD in which this was not questioned by the TA; e) the interpretive law introduced a normative meaning manifestly unfavorable to the taxpayer and f) sought to give that meaning a retroactive effect under Article 13, paragraph 3 of the Civil Code.

In general, the rules of legal hermeneutics postulate that the interpretive result cannot fail to have a minimum of correspondence in the letter of the law (Article 9, paragraph 2 of the Civil Code). Now, as already observed, there is no literal foundation in the form of subparagraph e) of paragraph 1 of Article 7 of the CSD that permits the interpreter to conclude regarding the limitation of the exemption provided therein to guarantees and financial operations directly aimed at credit granting, in the context of the activity carried out by the institutions and entities referred to in the same subparagraph. Indeed, the conjunctive and additive expression "and likewise", which conveys a sense of autonomy and independence, in no case can be interpreted as meaning "when directly connected to", or "when directly related to" in terms that suggest a relationship of subordination and dependence.

It is not relevant to mention, in this regard, the award of the Central Administrative Court of the South, rendered in proceedings No. 02754/08, of 21-09-2010, the award of the Supreme Administrative Court, rendered in proceedings No. 0770/15, of 06/17/2016, and, likewise, the award of the Supreme Administrative Court rendered in proceedings No. 01630/15, of 06/29/2016, to support the interpretation of the provision in question. Indeed, the cited jurisprudence does not refer to management commissions charged to pension funds by management companies and, in general, to commissions or other considerations for the provision of financial services.

As emphasized in the jurisprudence of CAAD already mentioned, the commissions to which that jurisprudence refers are commissions charged for the exercise of the activity of insurance mediation, taxed under Item 22.2, distinct from the provision of financial services covered by Item 17.3.4, both of the GTSD. In this way, that jurisprudence is not relevant to the discussion in the present proceedings, and cannot be used as a basis for proof to corroborate any alleged divergence in the interpretation of the semantic content of subparagraph e) of paragraph 1 of Article 7 of the CSD.

Being a legislative amendment of an innovative content and of a meaning manifestly unfavorable to the taxpayer, the same cannot have retroactive effect, under penalty of violation of the principle of legal security and protection of trust of citizens, inherent in the principle of the rule of law, as follows from the provisions of Article 103, paragraph 3, of the Constitution. It is therefore considered that Law No. 7-A/2016, of 30 March (State Budget Law 2016) came, through the combined interpretation of its Articles 152 and 154, to delimit the material scope of the exemption provided in subparagraph e) of paragraph 1 of Article 7 of the CSD, in an innovative and retroactive manner, and, as such, unconstitutional, for violation of the principle of prohibition of retroactivity of tax norms, provided in Article 103, paragraph 3, of the Constitution, inherent in the principle of legal security and protection of trust of citizens. But even if it were a true interpretive norm, the constitutional protection guaranteed to the taxpayer cannot be disregarded in Article 103, paragraph 3, by prohibiting retroactivity of tax law. Interpretive laws can be admissible and integrated into the interpreted laws, as is stated in Article 13 of the Civil Code. But this does not extend necessarily and without limitation to domains such as those of criminal law or tax law, or even restriction of rights, freedoms and guarantees, where the requirements of legality, typicality, certainty, legal security, appear to be especially exacting.

These principles may determine that also in the case of interpretive laws of tax laws the prohibition of retroactivity be particularly pertinent. The weighing of the literal and grammatical element in the presence, of the meaning proposed by the interpretive law, of the greater or lesser suitability of that meaning to that literal element and of the lapse of time occurring between the interpreted law and the interpretive law, can support the conclusion that the supposed interpretive law in question did not here assume merely a declarative nature, instead producing innovative and constitutive effects.

To the extent that they bind courts to a given interpretation, among several abstractly possible and already adopted by other courts, they inevitably imply retroactive application of the interpreted law. Through interpretive norms, the State comes to prevent, after the fact, that the Law it created functions through its intrinsic logic communicable to the recipients of the norms, altering the framework of the relevant elements of legal interpretation, in terms that collide with the principle of legal security and protection of trust of citizens and with the prohibition of retroactivity of tax laws enshrined in Article 103, paragraph 3, of the Constitution". Whence it must be understood that the present tax law interpretive with innovative content unfavorable to the taxpayer may only produce prospective effects, and must be interpreted in conformity with the Constitution, in line with the orientation recently advocated by the Constitutional Court in Award No. 267/17 of 31 May 2017. Otherwise, there would be a real and systemic risk of the proliferation of tax laws retroactively disguised as interpretive laws.

In light of the foregoing, we understand that the Claimant is correct in considering the commissions charged by it as exempt from Stamp Duty, in conformity with the provisions of subparagraph e) of paragraph 1 of Article 7 of the CSD.

Thus it follows that the petition for declaration of illegality of the Stamp Duty levies and compensatory interest which is the subject of the arbitral petition shall be granted, on the ground of error of law as to the meaning and scope of the provisions mentioned, with the consequent annulment of the same.

The consideration of the other defects attributed by the Claimant to the tax acts in question and other matters raised are thus rendered moot, with the exception of the following.

1. The provision (undue) of bank guarantee. Compensation. Indemnity interest

The Claimant provided a bank guarantee in the amount of €443,251.80 to suspend the tax enforcement proceeding instituted due to non-payment of the stamp duty levies and compensatory interest which is the subject of these proceedings.

Pursuant to Article 43, paragraph 1 of the General Tax Law, "indemnity interest is owed when it is determined, in an administrative claim or judicial challenge, that there was error attributable to the services as a result of which the tax debt was paid in an amount greater than that legally owed."

For its part, paragraphs 1 and 2 of Article 53 of the General Tax Law provide that "the debtor who, to suspend enforcement, offers a bank guarantee or equivalent shall be indemnified wholly or partly for the losses resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the success of the administrative claim, challenge or opposition to enforcement that have as their object the debt guaranteed", the three-year period not applying "when it is verified, in an administrative claim or judicial challenge, that there was error attributable to the services in the levy of the tax".

In the case before us, the TA committed the acts in question as a result of error in the interpretation of the applicable legal norms, error that is only attributable to the respective services, and therefore the three-year period does not apply in the present proceedings.

Paragraph 1 of Article 171 of the Code of Tax Procedure in turn provides that "[c]ompensation in the event of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the debt being enforced is disputed". Paragraph 2 of the same article provides that "[c]ompensation must be requested in the administrative claim, challenge or appeal or, if its basis is subsequent, within 30 days after its occurrence."

Being public and notorious that for the service of provision of a bank guarantee charges/commissions are paid to banks depending, in particular, on the risk, amount and term of the guarantee, it must be concluded that, although not expressly alleged, the Claimant sustained [and certainly continues to sustain] charges for the maintenance of the guarantee.

Having provided the guarantee for the total amount of the levies which are the subject of this challenge, costs and other additions (See Article 199-6 of the Code of Tax Procedure) and obtaining success in this action, the prerequisites are met that confer upon the Claimant the right to compensation under the cited Article 53 of the General Tax Law.

Thus, concluding that the Claimant is correct in the present proceedings, it should be compensated for the losses resulting from the provision of such undue guarantee.

It is certain that the quantum of compensation was not specified in concreto.

However, this would not necessarily have to be alleged, in so far as he who demands compensation does not need to indicate the exact amount of damages – See Article 569 of the Civil Code.

The liquidation of the compensation shall thus proceed at the stage of execution of judgment.

Regarding the request for indemnity interest, the legal prerequisites for making such a request are not met, beyond which compensation for the provision of an undue guarantee does not entail accumulation with other indemnity claims, especially interest (See Articles 43, paragraph 1, 44 and 102 of the General Tax Law and, e.g., Arbitration Award rendered in proceeding No. 409/2014-T and Awards of the Supreme Administrative Court rendered in proceedings Nos. 0215/07 and 013/011).

IV. DECISION

Therefore, this Arbitral Tribunal agrees:

a) To find the principal arbitral petition entirely meritorious, annulling the acts of levy of Stamp Duty and compensatory interest challenged;

b) To find the petition for compensation for improperly provided guarantee meritorious;

c) To condemn the Respondent to the payment of this compensation, which the Claimant shall liquidate at the stage of execution of judgment; and

d) To find the petition for indemnity interest unmeritorious.

Value of proceedings

In accordance with the provisions of Article 306, paragraph 2 of the Code of Civil Procedure, Article 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Article 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the proceeding is set at € 350,590.28.

Costs

Pursuant to Article 22, paragraph 4 of the Legal Regime for Arbitration in Tax Matters, the amount of costs is set at € 6,120.00, in accordance with Table I appended to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let notification be made.

Let notification of this decision be made to the Attorney General's Office by sending a copy thereof to the General Procuracy of the Republic pursuant to the provisions of Article 280, paragraph 3 of the Constitution and Article 72, paragraph 3 of the Law of the Constitutional Court.

Lisbon, 10 November 2017

The Collective Arbitral Tribunal

José Poças Falcão
(President)

Jónatas Machado

Fernando Araújo
(votes dissenting in accordance with the attached declaration)

Declaration of Dissenting Vote

SUMMARY

1. The Nature of Financial Institution

2. The "General Orientation" of 1999

3. The Connective "And likewise" of Art. 7, 1, e) of the CSD

4. The Repeal of the Regime Instituted in the State Budget Law of 2001 by the State Budget Law of 2003

5. The Interpretive Character of paragraph 7 of Art. 7 of the CSD

6. On the Principle of Trust

7. On Retroactivity

8. Should Interpretive Laws Be Prohibited in Tax Law?

9. The "Perfect Loophole"?

10. Restoration and Retroactivity

11. Implications of European Union Law?

12. Conclusion

I voted dissenting for the reasons set forth below.

Not all of them correspond to points of actual disagreement, and I only make them explicit because they serve as the basis for other points of actual disagreement.

1. THE NATURE OF FINANCIAL INSTITUTION

The qualification of the Claimant company as a Financial Institution appears uncontested, which implies that the commissions charged by it meet the subjective and objective requirements for taxability to SD.

Being subsumed within Item 17.3.4 of the GTSD, such taxability derives from Article 1, 1 of the CSD.

1. THE "GENERAL ORIENTATION" OF 1999

The invocation of the Dispatch of 1999, of the Deputy Director General of Taxes, is entirely misplaced: the Dispatch concludes, not for exemption, as the Claimant seeks to sustain when it invokes the continuity of this "general orientation", but for non-taxability "tout court".

For at the date of the Dispatch (17 March 1999) Financial Institutions did not yet appear in the GTSD (Decree No. 21916, of 28 November 1932, successively amended), which only happened later that year, with Law No. 150/99, of 11 September.

The previous Item 120-A of the GTSD referred exclusively to financial operations carried out by credit institutions or financial companies, or with their intermediation (Law No. 75/93, Article 31, 4, and Decree-Law No. 162/94, of 4 June), and the "commissions" to which subparagraphs c), d) and e) of that Item 120-A referred were exclusively those relating to guarantees provided or to financings granted – nothing comparable to the reference, in the new Item 17.3.4 introduced by Law No. 150/99, to "other commissions and considerations for financial services".

The Dispatch (which moreover referred to the banking sector, not to PFMCs) thus refers to a legal framework that changed already in that same year in which it was issued, its effects having lapsed. In the previous framework, the one in which the Dispatch was issued, there was not even taxation to SD, so the question of exemption obviously did not arise. With the entry into force of Law No. 150/99 it is no longer non-taxability that is at issue, but rather taxability – with the possible exemption (or not).

All of this is moreover recognized, at pp. 26-27, by the opinion of Doctor Maria Angelina Tibúrcio da Silva, attached by the Claimant herself.

Therefore, the entire argument that is based on the persistence of a "general orientation" that would not have been repealed since 1999 collapses. The Dispatch refers to a different reality, as indeed becomes apparent whenever it is invoked, whether in the proceedings, or in the two opinions attached to them.

There is therefore, contrary to what the Claimant alleges, no violation of the provisions of Article 68-A of the General Tax Law.

1. THE CONNECTIVE "AND LIKEWISE" OF ART. 7, 1, E) OF THE CSD

All the exegesis of the expression "and likewise" of Article 7, 1, e) is illuminated when the relevant norms in the CSD of 1999 and in the State Budget Law of 2003 are compared, causing much of the argument that revolved around it to crumble:

Law No. 150/99, of 11 September, Annex I: "Article 6

1 - e) Interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and object meet the types of credit institutions and financial companies provided for in Community law (...);

f) Commissions charged by credit institutions to other institutions of the same nature or entities whose form and object meet the types of credit institutions provided for in Community law (...)"

Law No. 32-B/2002, of 30 December (State Budget Law of 2003): Article 30 (Stamp Duty) "Article 6 of the Code of Stamp Duty, approved by Law No. 150/99, of 11 September, is hereby amended to read as follows:

Article 6

1 - e) Interest and commissions charged and likewise, 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 meet the types of credit institutions and financial companies provided for in Community law (...)" (underlined by us)

What happened? Subparagraphs e) and f) of Article 6 of the CSD merged into one, subparagraph e), recognizing the redundancy of regime in the separate subparagraphs.

Interest charged (subparagraph e)) and commissions charged (subparagraph f)) merged into a single expression, since both are charged; the reference to the third term, the use of credit granted, was missing, and the connective "and likewise" came to connect what is charged with what is used.

Subsequently, Article 36 of Law No. 107-B/2003, of 31 December, would add to Article 7 (in the new form of the CSD introduced by Decree-Law No. 287/2003, of 12 November) the expression "guarantees provided", resulting in the form still in force today:

"Article 7

1 - e) Interest and commissions charged, guarantees provided and likewise, 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 meet the types of credit institutions, financial companies and financial institutions provided for in Community law (...)"

The various imputations of meaning to the connective thus sound elaborate, when we realize how it came about: by simple will to merge two proximate subparagraphs, being possible to admit, at most, that the device of the use of the connective generated an unnecessary ambiguity.

What the current Article 7, 1, e) of the CSD intends to convey is only that the regime of exemption of various operations that began as being provided for in separate subparagraphs is identical.

In terms of determinability and clarity, values especially relevant in Tax Law, nothing more can or should be said about the "semantics" (or even the "polysemy") of this connective within that norm.

1. THE REPEAL OF THE REGIME INSTITUTED IN THE STATE BUDGET LAW OF 2001 BY THE STATE BUDGET LAW OF 2003

Article 37, 2 of Law No. 30-C/2000, of 29 December (State Budget Law of 2001), added a paragraph 2 to Article 6 of the CSD:

"Articles 4, paragraph 2, 6, paragraphs 1, subparagraphs e) and f), 2 and 3, 8, 13, subparagraph g), 14, subparagraphs a), f) and i), 15, 17, 18, 20, 22, 25, 27, paragraph 1, 30, paragraphs 8 and 9, 32 and 34, paragraph 1, of the Code of Stamp Duty, approved by Law No. 150/99, of 11 September, are hereby amended to read as follows:

(…)

Article 6

(…)

2 - The provisions of subparagraphs e) and f) apply only to financial operations directly aimed at credit granting, in the context of the activity carried out by the institutions and entities referred to in those subparagraphs."

For its part, Article 30 of Law No. 32-B/2002, of 30 December, repealed this form of paragraph 2 of Article 6 of the CSD:

"Article 6 of the Code of Stamp Duty, approved by Law No. 150/99, of 11 September, is hereby amended to read as follows:

Article 6

(…)

2 - (Former paragraph 3.)"

Given what happened subsequently, particularly in terms of the controversy generated and in terms of the position conveyed by the most recent legislative amendments, we might admit that there was a legislative lapse, whereby, in merging the 2 subparagraphs into one, the legislator forgot to maintain the specification formulated in the State Budget Law of 2001 – but that is irrelevant, because we must presume that it knew how to express its thinking in adequate terms (Article 9, 3 of the Civil Code).

There was therefore a tacit repeal (in the sense that there was no enumeration in which the repealed provision appeared).

Note, from the outset, that, at the moment in which it is eliminated, by the State Budget Law of 2003, paragraph 2 of Article 6 of the CSD which had been introduced by the State Budget Law of 2001, the regime applied only to credit institutions and financial companies.

The regime did not yet apply to "financial institutions" (which were only added to the provision by the form of Law No. 107-B/2003, of 31 December).

We can admit that the legislator, confronted with...

[... As the dissenting opinion is truncated in the original, the translation concludes here ...]