Process: 31/2018-T

Date: July 3, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 31/2018-T) addresses whether intra-group loans between a subsidiary (A... S.A.) and its parent holding company (B... SGPS, S.A.) qualify for stamp tax exemption under Article 7(1)(g) of the Portuguese Stamp Tax Code. The Tax Authority assessed stamp duty of €93,882.44 (2011) and €214,255.34 (2012) on financial operations intended to cover treasury shortfalls, arguing the taxpayer failed to prove the loans met exemption requirements. The central legal issues concern: (1) whether the one-year maximum period applies to individual credit tranches or the overall contract term; (2) what evidence establishes that loans exclusively covered treasury shortfalls rather than general financing needs; and (3) who bears the burden of proving exemption requirements. The taxpayer argued that a loan contract structured with FIFO repayment methodology, where individual tranches were reimbursed within one year, satisfied the exemption conditions. The Tax Authority maintained that the taxpayer failed to demonstrate the correspondence between each credit utilization and reimbursement, and that the contract's dual purpose (treasury shortfalls or financial needs) prevented qualifying as exclusively for treasury coverage. The tribunal must determine whether accounting records sufficiently prove the temporal and purpose requirements for exemption, with significant implications for intra-group financing structures and SGPS treasury management operations in Portugal.

Full Decision

ARBITRATION DECISION

They hereby agree in Arbitral Tribunal

I – Report

  1. A… S.A., with collective person number …, with registered office at Rua …, …, and …, has filed a request for the constitution of an arbitral tribunal, pursuant to the provisions of articles 2.º, no. 1, paragraph a), and 10.º of Decree-Law no. 10/2011, of 20 January, to assess the legality of the act of partial acceptance of the administrative appeal filed against the stamp tax assessments nos. 2016… and 2016…, issued on 29 January 2016, referring to the tax periods of 2011 and 2012, with respect to the assessment relating to financial operations intended to cover treasury shortfalls of shareholder B…, SGPS, S.A., in the amounts of € 93,882.44 and € 214,255.34.

The request is based on the following grounds.

The Applicant is held almost entirely (99.3% of capital) by "B… SGPS, SA", being in a controlling relationship with the parent company.

It granted an intra-group loan to B… SGPS, S.A., with the purpose of covering treasury shortfalls and which was carried out through individual tranches with reimbursement by the FIFO methodology.

The financial operations carried out by the Applicant were fully reimbursed by the borrower within a period not exceeding one year, and what is relevant for assessing the period is the time that elapses between each credit utilization and its respective reimbursement (and not the period formally established in the contract).

There is also an evident correlation between the loans and the treasury shortfalls of B…, as results from the comparative analysis of the average monthly balance of the funds provided by the Applicant.

And thus, the financial operation met all the legal requirements demanded by paragraph g) of no. 1 of article 7.º of the Stamp Tax Code (CIS) for the application of the exemption provided therein, insofar as it involved the granting of credit for the benefit of the company with which it is in a controlling or group relationship, for a period not exceeding one year and intended to cover treasury shortfalls.

In failing to consider these requirements as satisfied, the act of partial acceptance of the administrative appeal and the corresponding stamp tax assessments incurred in a violation of law that justifies their annulment.

In its response, the Tax Authority maintains that the burden of proof of the facts that characterize the existence of the exemption belongs to the taxpayer, being incumbent upon it to demonstrate that the financial operations did not have a period exceeding one year and were exclusively intended to cover treasury shortfalls.

It being incumbent on the taxpayer to demonstrate in relation to each financial operation the date of credit utilization, as well as that of its reimbursement, and the necessary correspondence between financial flows, which the Applicant failed to prove.

It would also be necessary to establish as proved that the operation was intended to cover exclusively treasury shortfalls. And on that point, what is stated in the contract clauses is that the purpose of the contract was treasury shortfalls or financial needs. Furthermore, in order for the loan to be intended solely to meet specific treasury shortfalls it would become necessary to report treasury insufficiencies to the beginning of each credit utilization through accounting records.

It concluded that the request was unsubstantiated.

  1. In the proceeding, the production of testimonial evidence was not requested and the hearing referred to in article 18.º of the RJAT was dispensed with.

In submissions, the parties maintained their previous positions on the substantive issues.

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

Pursuant to the provisions of paragraph a) of no. 2 of article 6.º and paragraph b) of no. 1 of article 11.º of the RJAT, in the wording introduced by article 228.° of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.

The parties were duly and timely notified of this appointment and did not express any intention to reject it, in accordance with the combined provisions of article 11.º, no. 1, paragraphs a) and b), of the RJAT and articles 6.° and 7.º of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11.º of the RJAT, in the wording introduced by article 228.° of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 4 April 2018.

The arbitral tribunal was properly constituted and is materially competent in light of the provisions of articles 2.º, no. 1, paragraph a), and 30.º, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are represented (articles 4.º and 10.º, no. 2, of the same legal instrument and 1.º of Administrative Order no. 112-A/2011, of 22 March).

The proceeding is free from nullities and no exceptions were raised.

It is incumbent upon us to assess and decide.

II – Reasoning

Factual Matter

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

A) In compliance with Service Orders nos. OI2015… and no OI2015…, a tax inspection procedure was instituted with respect to the Applicant, for the tax periods of 2011 and 2012, commencing on 17 July 2017, and which had as its object the investigation of failure to assess stamp tax.

B) As a result of the conclusions of the Tax Inspection Report, the Applicant was notified of stamp tax assessment no. 2016…, in the amount of € 110,201.10, plus compensatory interest in the amount of € 18,445.92, totaling the sum of € 128,647.02, relating to the tax period of 2011, and of stamp tax assessment no. 2016… in the amount of € 246,873.66, plus compensatory interest in the amount of € 33,793.22, making a total of € 280,666.88, relating to the tax period of 2012.

C) The Applicant failed to make payment of the sums in question by the end of the stipulated period, and therefore was summoned to enforcement proceedings, having provided adequate security in the form of a guarantee, in order to obtain the suspension of the enforcement proceedings.

D) The tax acts determining the stamp tax assessment, following the inspection action, related to the application of the general anti-abuse rule, in accordance with no. 2 of article 38.º of the General Tax Law, which was embodied in adjustments in the amounts of € 16,318.68 and € 32,618.32, relating to the tax periods of 2011 and 2012, and to financial operations intended to cover treasury shortfalls of shareholder B…, SGPS, S.A., in the amounts of € 93,882.44 and € 214,255.34, relating to the same tax periods.

E) The Applicant filed an administrative appeal against the assessment acts, which was partially accepted by order of the Head of Division of the Finance Directorate of …, of 23 October 2017, which upheld the adjustments resulting from the inspection action, with respect to stamp tax, both as to the loan that had been granted to shareholder B…, SGPS, S.A., and as to the application of the general anti-abuse clause.

F) In the present proceeding, the Applicant disputes only the assessment relating to financial operations.

G) B… holds a participation of 98.28% of the capital of the Applicant.

H) On 31 December 2009, the Applicant and B… entered into a loan contract, in the form of an intra-group loan, up to the amount of € 40,000,000.00, in individual tranches with reimbursement by the FIFO methodology, to meet treasury shortfall or financing needs of the borrower.

I) The credit utilizations were recorded in accordance with the entry that appears in document no. 10 attached to the initial petition, which is hereby reproduced.

The Tribunal formed its conviction as to the proved 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.

Legal Issue

  1. The Applicant seeks to obtain annulment of the stamp tax assessment relating to the years 2011 and 2012 for the treasury operations carried out for the benefit of B…, alleging that these financial operations meet the requirements of the tax exemption provided for in article 7.º, no. 1, paragraph g), of the CIS.

As results from this legal provision, with the heading "Other exemptions", the following are also exempt from the tax: "financial operations, including their respective interest, for a period not exceeding one year, provided that they are exclusively intended to cover treasury shortfalls and carried out by venture capital companies (SCR) in favor of companies in which they hold interests, as well as those carried out by other companies in favor of companies dominated by them or companies in which they hold a participation of at least 10% of capital with voting rights or whose acquisition value is not less than (euro) 5,000,000, in accordance with the last agreed balance sheet, and also those carried out for the benefit of a company with which the creditor is in a controlling or group relationship."

The exemption depends, therefore, on the cumulative verification of three requirements: i) these must be financial operations for a period not exceeding one year; ii) exclusively intended to cover treasury shortfalls; iii) carried out for the benefit of a company with which the creditor is in a controlling or group relationship.

In the present case, it is evident from the loan technical sheet constituting document no. 9 attached to the initial petition (and which is reproduced in Annex XIV to the Tax Inspection Report), that the loan may reach the limit value of € 40,000,000.00, was granted to B…, which holds a participation of 98.28% of the capital of the creditor, being characterized as an intra-group loan, and which has the purpose of "treasury shortfall or financing needs". It is also stated that the loan is intended to be granted in "individual tranches with reimbursement by the FIFO methodology".

A first note worth noting from the substantive regime of the contract is that it satisfies the requirement of the controlling or group relationship referred to in the aforementioned provision of paragraph g) of no. 1 of article 7.º of the CIS.

However, one of the other essential requirements is not satisfied: the loan is referred to as having the purpose of "treasury shortfall or financing needs" and, in that sense, does not satisfy one of the criteria expressly mentioned in paragraph g) of no. 1 of the Code, by which financial operations must be intended exclusively to cover treasury shortfalls, and those other operations must be excluded from the scope of the tax benefit – such as the one being analyzed in this case – which have as their object not only treasury shortfall, but also financing needs.

The remaining elements of the case reveal, moreover, that the loan does not have the typical nature of a financial operation intended exclusively to meet treasury shortfalls. It suffices to note that the summary table of the credit used, which constitutes document no. 10 attached to the initial petition, describes successive financial flows of debits and credits distributed across two different accounts (26620 and 26621) whose amortization is carried out by direct chronological order of their realization, according to the first in, first out accounting method, and which is not compatible with a simple autonomous financing operation intended to remedy specific liquidity difficulties.

On 31 January 2010, the outstanding balance was € 22,148,670.13, appearing recorded in columns 3 and 6, with successive movements then entered on debit (columns 2 and 3) and movements on credit (columns 4 and 5). However, the balance determined in column 6 is determined only through the debt amortizations in columns 4 and 5, implying that this initial debt was considered extinct on 15 June 2011. The debit movements that continue to be entered in columns 2 and 3 are not considered in determining the balance and instead transfer to a new column (7), giving rise to the constitution of a new debt which, on that same date of 15 June 2011, reached € 41,830,867.13.

From then on, credit movements are deducted from the debt balance in column 7, while debit movements are accumulated in a new column (8), such that on 15 December 2011, when the debt recorded in column 7 is liquidated, the new debt recorded in column 8 amounts to € 37,552,801.30.

Similar procedures follow, which in practice determine the amortization of existing debt through credit movements and the constitution of a new debt through debit movements (columns 9, 10, 11 and 12).

It is also worth noting that, through the various accounting records, the Applicant continuously made available to the other company in the group, during the years 2011 and 2012, values of such magnitude that are not compatible with the mere occurrence of treasury difficulties.

  1. In this context, the financial operation in question appears to be characterized as a credit facility in the form of a current account that falls within the scope of item 17.1.4. of the General Stamp Tax Table.

A credit facility is understood as a contract by which one party undertakes to provide the other with the availability of credit up to a certain amount and for a determined time. By effect of the contract, the borrower acquires the right to use the credit made available to him in the manner and on the dates that he deems convenient, whereby it is at the moment when the transfer of financial means through the use of credit is verified that the credit relationship becomes effective.

As a result of the amendments introduced in the new CIS, the fact giving rise to the tax obligation became the use of credit, and not the execution of the contract – as resulted from the preceding regime – and, in that sense, the taxable value is now determined based on the obtaining of credit and the period during which it is in force.

The general rule of tax incidence is that of item 17.1 of the TGIS, which taxes the use of credit, in the form of funds, goods or other values, on the respective value based on the period. In the case of contracts with a determined period, the tax shall be imposed on each of the credit utilizations in accordance with items 17.1. to 17.3 of the TGIS, with a rate of 0.5% applying when the credit has a period equal to or exceeding one year, of 0.6% when the credit has a period equal to or exceeding five years, and 0.04% per month when the period is less than one year, this period corresponding to the time that elapses between the date of credit utilization and the deadline contained in the contract up to which the credit is granted.

Conversely, in credit used in the form of a current account, bank overdraft, and whenever the period of utilization is not determined or determinable, the tax fact takes on a continuous nature, and for these cases item 17.4 establishes another criterion for determining the tax, requiring application of the rate of 0.04% on the average monthly amount obtained through the sum of the outstanding balances determined daily, during the month, divided by 30. The tax is imposed, in this case, on the balances determined in each month, being only in that sense that relevance can be attributed to the time factor.

This is, moreover, the principle that results from article 5.º, paragraph g), of the Stamp Tax Code: in credit operations, the tax obligation is considered to be constituted at the moment they are realized or, if the credit is used in the form of a current account, bank overdraft, or any other means by which the period is not determined nor determinable, on the last day of each month.

Being this the legal regime applicable to the situation of the case, the demonstration – as the Applicant seeks – that the reimbursements of the credits made available in the tax periods relating to 2011 and 2012 were always carried out within a period of less than one year is of no relevance whatsoever.

This requirement would be relevant if we were faced with an autonomous operation intended exclusively to cover treasury shortfalls for the purpose of being able to benefit from the tax exemption provided for in article 7.º, no. 1, paragraph g), of the CIS. But, as we have seen, not only is the financing not intended exclusively for this purpose, but it typically takes the nature of a credit facility in the form of a current account without a determined or determinable period, which is from the outset evidenced by the successive financial flows of disbursement and reimbursement.

  1. It is important to bear in mind, finally, the rules of evidence law that result from article 74.º of the LGT. The burden of proof of the facts constituting the rights of the tax administration or of taxpayers falls on whoever invokes them, which translates into a general principle of allocation of burden of proof, whereby it is incumbent on the Administration to prove the existence of the tax facts on which the assessment is based and on the taxpayer to prove the facts that are precluding, modifying or extinguishing that right (article 342.º of the Civil Code).

Tax exemption is, by nature, a fact precluding regular taxation, and therefore – as is the settled case law understanding – it is the taxpayer who bears the burden of proving the existence of the prerequisites upon which the recognition of the tax benefit depends (decision of the STA of 14 January 2005, Case no. 013143, decisions of the TCA South of 24 January 2012, Case no. 05079/11, of 2 July 2013, Case no. 06629/13, and arbitration decisions handed down in Cases nos. 76/2013-T and 163/2015-T).

Where there is a situation of lack or insufficiency of evidence regarding one or more facts that are indispensable for the decision of the case, these must be considered as non-existent, insofar as they cannot be considered as proved, implying that the tribunal shall issue a decision unfavorable to the party that was burdened with the proof of those facts.

In the present case, the Applicant failed to prove the prerequisites upon which the sought tax exemption depends, and specifically, the proof of the exclusive purpose of the loan to cover treasury shortfalls. Furthermore, other elements of the case point to the existence of a type of current account financing without a determined or determinable period that does not fall within the provision of the rule of article 7.º, no. 1, paragraph g), of the CIS. And even if some doubt could subsist as to these evidentiary results, the fact is that the doubt would always have to be resolved to the detriment of the taxpayer on whom the burden of proof of the fact precluding the assessment of stamp tax was incumbent.

III – Decision

For these reasons, it is decided:

a) To rule the arbitration request totally unsubstantiated;

b) To uphold the decision of partial rejection of the administrative appeal relating to the tax acts assessing stamp tax relating to the years 2011 and 2012.

Value of the Case

The Applicant indicated as the value of the case the amount of € 298,851.13, which was not contested by the Respondent and corresponds to the value of the assessment which it was sought to oppose, and therefore the value of the case is fixed at that amount.

Costs

Pursuant to articles 12.º, no. 2, and 24.º, no. 4, of the RJAT, and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed to that Regulation, the amount of costs is fixed at € 5,202.00, which is charged to the Applicant.

Notify.

Lisbon, 03 July 2018

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitrator Member

Luís Menezes Leitão

The Arbitrator Member

Francisco Nicolau Domingos

Frequently Asked Questions

Automatically Created

What is the stamp tax exemption under Article 7(1)(g) of the Portuguese Stamp Tax Code for intra-group loans?
Article 7(1)(g) of the Portuguese Stamp Tax Code exempts credit operations between companies in a controlling or group relationship when: (1) the loan period does not exceed one year, and (2) the operation is exclusively intended to cover treasury shortfalls. This exemption facilitates cash pooling and treasury management within corporate groups without triggering stamp duty on short-term operational financing.
Does the loan repayment period for stamp tax exemption purposes refer to each individual tranche or the overall contract term?
The critical interpretive question is whether the one-year period refers to individual credit tranches or the overall contract framework. The taxpayer argued that each tranche's utilization-to-repayment period determines compliance, particularly when using FIFO methodology. The Tax Authority demanded proof of each specific drawdown and corresponding repayment. This distinction significantly impacts revolving credit facilities and master loan agreements with multiple drawdowns.
Who bears the burden of proof for stamp tax exemption on intra-group treasury coverage operations?
Portuguese tax law places the burden of proof for exemptions on the taxpayer claiming the benefit. The taxpayer must demonstrate: (1) the controlling/group relationship exists; (2) each credit utilization was repaid within one year with documented correspondence between flows; and (3) the loans exclusively covered treasury shortfalls, evidenced by accounting records linking disbursements to specific treasury insufficiencies rather than general financial needs or investment purposes.
What conditions must be met for intra-group financial operations to qualify for stamp tax exemption in Portugal?
To qualify for stamp tax exemption, intra-group financial operations must satisfy cumulative conditions: existence of a controlling or group relationship (defined under Portuguese corporate law); maximum loan duration of one year (measured from each utilization to repayment); exclusive purpose of covering treasury shortfalls (not general financing or investment); and documentary evidence including accounting records demonstrating the temporal limits and correlation between loan disbursements and specific treasury deficits.
Can a subsidiary lending to its parent SGPS company claim stamp tax exemption for treasury shortage coverage loans?
Yes, a subsidiary can grant exempt loans to its parent SGPS company, provided all statutory requirements are met. The controlling relationship exists whether the parent controls the subsidiary or vice versa. However, the taxpayer must prove each loan tranche was repaid within one year and exclusively addressed treasury shortfalls. Contractual language referring to 'treasury shortfalls or financial needs' may jeopardize exemption by suggesting purposes beyond temporary cash flow coverage, requiring clear accounting documentation linking each disbursement to specific operational treasury deficits.