Banking Sector Contribution (CSB) – Subjective Incidence on Foreign Bank Branches & Right of Action Expiry | CAAD 437/2017-T

ARBITRAL DECISION

The arbitrators constituting this Collective Arbitral Court hereby agree:

I – REPORT

A... – Branch in Portugal, with Tax ID Number..., with registered office at..., on..., ... - ... (hereinafter Claimant), having filed a petition pursuant to article 2(1) of Decree-Law No. 10/2011 of 20 January, which instituted arbitration as an alternative means of jurisdictional resolution of disputes in tax matters, and in accordance with Ordinance No. 112-A/2011 of 22 March, requested the constitution of an Arbitral Court to review the legality of the self-assessment of the Contribution on the Banking Sector (CSB) for the period 2016 – Form No........ (cf. copy of the Form attached as Document No. 1).

The Respondent is the Tax and Customs Authority (hereinafter also designated as "Respondent" or "TA").

The petition for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Respondent.

Pursuant to article 6(2)(a) and article 11(1)(b) of Decree-Law No. 10/2011 of 20 January, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council of CAAD designated the signatories to compose a collective arbitral tribunal, who communicated their acceptance of the appointment in accordance with the applicable terms and deadline.

The Parties were duly notified of this designation and did not express any intention to refuse it, in accordance with article 11(1), paragraphs a) and b) of the RJAT, together with articles 6 and 7 of the Deontological Code.

In compliance with the provisions of article 11(1)(c) of the RJAT, the Arbitral Court was constituted on 26-9-2017.

To support the petition, the Claimant alleges, in essence and summary, the following:

• It is a branch in Portugal of the company B..., a Spanish legal entity;

• The branch carries out the activity of granting credit, factoring and financial leasing in Portugal.

• The development of the legal regime of the tax in question was regulated by Ordinance No. 121/2011 of 30 March, which in its article 6 established as procedure and form of assessment a self-assessment regime, in accordance with which this contribution is assessed annually by the taxpayer through the official form No. 26.

• The assessment and payment in question corresponded to the first act of taxation of this tax by the claimant, a fact which resulted from a recent legislative change, a situation that led the claimant to apply a framework to its situation that is now understood to be incorrect.

• Indeed, Law No. 7-A/2016 of 30 March (State Budget Law for 2016) altered the regime of the Contribution on the Banking Sector in its article 185.

• This alteration caused a change in its subjective scope of application, now also covering branches in Portugal of credit institutions with head offices in EU Member States, a new reality that the claimant incorrectly understood could apply to its situation – as a Portuguese branch of a Financial Credit Establishment with head office in Spain.

• Following this new rule of application, and in accordance with the terms of the form of assessment prescribed in the contribution regime, the present claimant paid on 29 June 2016 the amount of € 61,173.37, as per attached copy (document 1).

• Due to the short period between the approval and entry into force of the new legislation and the deadline for determining taxable income, self-assessment and payment of the tax, respectively 30 March and 30 June of 2016, the claimant was unable to definitively evaluate the true scope of the new subjective scope of the tax, and opted to subject itself to taxation, leaving for a later time this evaluation of its status as a taxpayer of the contribution.

• It was in this context that the self-assessment and payment of the tax occurred, whose annulment the claimant, through a request for administrative review, subsequently requested and asked for the respective refund, after having concluded that it should not be subject to it.

• However, the TA decided to deny the request. It is from the denial of the claimant's claim that it leads to submit the matter to the review of this arbitral tribunal.

• The claimant considers that the TA's action was unlawful due to express violation of legal norms to which it is subject as an entity applying Portuguese tax law.

• The assessment made must necessarily be unlawful, in which case it must be annulled.

• The Claimant also has the right to be compensated for the amount paid, with compensatory interest in accordance with article 43 of the LGT and article 61 of the CPPT, that is, calculated until the effective refund of the tax paid, counted from the date of denial of the administrative review (2017-04-28).

The Respondent (TA) submitted a Response, in which it defends itself by exception and, subsidiarily, by objection.

Thus, the TA alleges in its defense by exception that the prerequisites for the verification of the expiration of the right to action are met and, furthermore, the arbitral tribunal is materially incompetent because it allegedly concerns a contribution and not a tax.

II. PRELIMINARY DECISION

Material Competence of the Tribunal

Exception

The thesis of the Respondent TA to support the exception of material incompetence can be summarized as follows:

The tribunal is materially incompetent since we are dealing with a contribution and not a tax.

Contributions, as a tertium genus of tax, occupying an intermediate category between a fee and a tax, constitute pecuniary and coercive payments required by a public entity in consideration for an administrative service only presumably caused or benefited by the taxpayer. Alongside traditional contributions, the special ones referred to in article 4(3) of the LGT, there are equally the more modern financial contributions in favor of public entities, which have constitutional basis in article 165(1)(i) since the 1997 revision.

With regard to the figure of financial contributions in favor of public entities, J. J. Gomes Canotilho and Vital Moreira state as follows: "The same constitutional norm also mentions, innovatively, alongside taxes and fees, other 'financial contributions in favor of public entities'. With this reference – which clearly points to a third category of taxation, alongside taxes and fees stricto sensu – the Constitution seems to have given shelter to the controversial concept of parafiscality, which comprises certain hybrid figures, which share in part the nature of taxes (because they do not necessarily have an individualized counterpart for each taxpayer) and in part the nature of fees (because they aim to remunerate the service provided by a certain public institution, or endowed with public powers, to a certain circle or category of persons or entities, that collectively benefit from the activity of that institution). It is in this category that traditionally fall contributions to social security, quotas of professional orders and other public bodies of professional self-discipline, the 'fees' of regulatory bodies, etc."

The CSB constitutes a contribution, not only in formal but also in material terms, insofar as it is possible to identify a counterpart presumably caused or benefited by the taxpayer. In fact, the economic operators of the sector, taxpayers of the CSB, will presumably cause or benefit from the strengthening of the tax effort made by the financial sector and the more effective mitigation of the systemic risks associated with it. The CSB has the objective, in accordance with the preamble of its regime, "... to strengthen the tax effort made by the financial sector and to more effectively mitigate the systemic risks associated with it."

It is axiomatic and inescapable that it is the economic operators of the sector and taxpayers of this contribution who benefit in the first instance from that mitigation of systemic risks, and it is therefore to be concluded that the CSB constitutes, formally and materially, a financial contribution.

The Respondent TA invokes, to support its thesis, various doctrinal positions, namely those of Sérgio Vasques and Carla Castelo Trindade, Conceição Gamito and Teresa Teixeira da Motta, which advocate for the non-extension of the TA's binding nature to tax arbitration to "fees and contributions".

In response to this exception, the Claimant also affirms, in summary, the following:

The RJAT expressly declares the competence of the CAAD jurisdiction to review the legality of acts of assessment/self-assessment of taxes and not merely of taxes (art. 2(1)(a)).

The LGT itself determines that special (or financial) contributions are considered taxes (art. 4(3)).

Doctrinally, the existence of this subtype of tax is justified in two groups: contribution for improvement and contribution owed for reasons of increased public expenditure. In the present case we are faced with the latter, since, in accordance with Ordinance No. 121/2011, it is imposed on the banking sector "with the dual purpose of strengthening the tax effort made by the financial sector and more effectively mitigating the systemic risks associated with it".

For the Claimant, the CSB is an effective tax, given its specific situation, since it is not subject to the possible application of a resolution measure by the Bank of Portugal for which the Resolution Fund provides financial support, which Fund is a legal person under public law that aims to support the financing of resolution measures determined by the Bank of Portugal. The Claimant will never be subject to a resolution measure to be applied by the Bank of Portugal nor could, for that reason, come to benefit from the financial support provided by the Resolution Fund to resolution measures applied by the Bank of Portugal.

The fact that the subjective scope of the CSB has come to encompass entities that are not presumed beneficiaries of the Resolution Fund's financial support nor presumed causes of the Resolution Fund's intervention removes the requirement of homogeneity of entities subject to the CSB that is an essential requirement for a tax to be configured as a financial contribution.

The legislator expressly assumed its intention to create the CSB with a view to bringing the tax burden on the financial sector closer to the tax burden of other sectors of the economy, which alone is sufficient to configure this tax as a tax.

Although it is not possible to predict which of the institutions in the group of mandatory participating institutions of the Resolution Fund will effectively be subject to resolution measures and, to that extent, beneficiaries of the financial support granted by the Resolution Fund to the application of resolution measures adopted by the Bank of Portugal, there should be no doubt that only the institutions that could be subject to a resolution measure to be applied by the Bank of Portugal can be considered presumed and potential beneficiaries of the public services provided by the Resolution Fund to the Bank of Portugal or presumed causes of the Resolution Fund's intervention (by being subject to resolution measures). With regard to the Claimant's specific case, its action can never "cause" or justify the intervention of the Resolution Fund, since it is not subject to prudential supervision in Portugal (in accordance with article 122 of the General Regime of Credit Institutions and Financial Companies, which establishes that the claimant is subject to supervision by the authority of its country of origin, in this case Spain) nor can it be subject to any resolution measure to be applied by the Bank of Portugal with the financial support of the Resolution Fund.

In view of the Claimant's non-inclusion in the group of mandatory participating institutions of the Resolution Fund (which, for that reason, are subject to the payment of initial, periodic and special contributions to the Resolution Fund), it considers that there remains no reasonable doubt as to the nature of the CSB: that of a true tax.

Always in the terms of the Claimant's response, on the assumption that we are dealing with a contribution, the understanding that this should be treated as a tax (following article 4(3) of the LGT) underlies Nuno Villa-Lobos and Tânia Carvalhais Pereira, in "Tax Arbitration: brief notes", inserted in Administrative and Tax Arbitration - Problems and Challenges, Almedina, 2013 - 2nd edition, p. 375 et seq, where they analyze and expose the material scope of application of the CAAD's tax jurisdiction.

The Claimant also invokes the award in Case 312/2015-T, in which it was understood that special contributions – in that case, the extraordinary contribution on the energy sector – insofar as administered by the TA, fall within the competence of the arbitral tribunals functioning within the CAAD.

In consideration:

The arguition of the incompetence of the arbitral tribunal to know of the assessment of the Contribution on the Banking Sector was also raised in Case 139/2017-T. This tribunal has no reason to diverge from the understanding set forth there:

"The RJAT expressly states in article 2(1)(a) that the material scope of arbitration covers 'the declaration of illegality of tax assessment acts'. However, the TA believes that the fact that article 2 of Ordinance No. 112-A/2011 used the expression 'taxes' instead of maintaining 'taxes' means that the Government intended to restrict the disputes to which the TA is bound to those relating to taxes. We do not support such a position, since such interpretation does not appear to be legally correct in light of the literal tenor and systematic articulation of the provisions in question. If any meaning can be attributed to the literal-systematic interpretation of the provisions, it is that the reference to 'taxes' instead of 'taxes' in article 2 of Ordinance No. 112-A/2011, followed by the express reference to article 2(1) of the RJAT and the express enumeration of a set of exceptions, indicates that the 'legislator' of the Ordinance did not have the restrictive intent that the TA invokes, for if it did, it would have made express allusion to this restriction in the set of paragraphs contemplating the exceptions. (In this sense, see, among others, the Arbitral Award rendered in case No. 312/2015-T, on analogous subject matter) We concur with the understanding set forth in the above-mentioned Arbitral Award, also because it is understood that, "summoning the teleological and rational elements of legal interpretation also do not point towards such a restriction, but only towards the 'limitation of the scope of the TA's binding nature through the exercise of powers to administer taxes', and that is, moreover, the logical limit of the binding nature – the restriction thus not encompassing those related to 'contributions' also assessed by it." The fact is that, in the case of the present proceedings, the procedure for assessment and collection of the CSB, even if we consider it inserted in the legal category of 'contributions', in no way differs, in its nature and structure, from that of 'taxes', since the TA acts as if these were taxes, as evidenced by the availability in the self-assessment portal. To which must be added the clearly unilateral nature of the contribution in question, in all respects similar to that which typically characterizes the tax. Thus, there is no valid reason to exclude the TA's binding nature, in such cases, to arbitrability. […] It is therefore considered that the scope of arbitrability encompasses, as results from the combined interpretation of articles 2 of the RJAT and Ordinance No. 112-A/2011, the review of claims relating to taxes whose administration is entrusted to the TA, with the exception of the cases set forth in the paragraphs of article 2 of Ordinance No. 112-A/2011 ̶ thus also encompassing claims relating to 'contributions' assessed by it. Consequently, and since the CSB is a tax administered by the TA, whose procedure for assessment and collection is structurally identical to that of taxes, the arbitral tribunal is competent to resolve the present dispute, regardless of whether this tax comes to be qualified as a contribution or as a tax."

As decided in the aforementioned Case, and for the reasons adduced there, the tribunal considers that the exception of incompetence is not established.

The tribunal further understands, in substance, that the Contribution on the Banking Sector has the legal nature of a tax, whenever it applies to entities that, ex vi legis (because they fall outside the subjective scope defined in articles 145-AA and 145-AK of the General Regime of Credit Institutions and Financial Companies), cannot benefit from the Resolution Fund, which Fund, pursuant to article 135-F(1)(a) of the aforementioned General Regime, that Contribution aims to capitalize, in addition to the initial and periodic contributions of the "participating institutions" referred to in paragraphs b) and c) of the same provision (the latter indeed also already applying to entities that are not credit institutions). Nor can such entities benefit from the "mitigation of systemic risk", unless such mitigation is configured with such universal spectrum that it ends up concerning society as a whole, in a logic of value of the stability of the banking sector, but that premise would remove such 'benefit' any legally legitimating significance of the imposition of the Contribution on the Banking Sector to financial companies (as opposed to credit institutions). Now, in this dimension, of the application to entities that, ex vi legis, cannot benefit from the Resolution Fund (see also the provision in article 153-C of the aforementioned General Regime), that is, to entities (or their branches) that are not banks / credit institutions, it is in the end the discussion of the legality of the assessment of a pure tax.

The exception is therefore dismissed.

Regarding the alleged expiration of the right to contest the tax act in arbitral proceedings

The Respondent alleges: Article 10 of the RJAT establishes, regarding assessment acts, that the deadline for filing the petition for arbitral pronouncement is 90 days, referring, regarding the time of commencement of the counting, to what is prescribed in article 102, paragraphs 1 and 2 of the Tax Procedure and Process Code. From these provisions the Respondent TA extracts that the 90-day period has as its starting point the day following the end of the voluntary payment period of the tax obligation, by force of article 102(1)(a). Taking into account the combined provisions of article 6(3) and article 7(1) of Ordinance No. 121/2011 of 30-03-2011, the deadline for payment of the tax in question in the present case occurred on 30-06-2016. The petition for the constitution of the arbitral tribunal was filed on 21-07-2017, so it is untimely and the tribunal cannot know of it.

The Respondent TA recognizes and states that the timeliness of the petition could be based on the existence of some means of administrative review of the assessment act where a decision had been rendered denying, wholly or partially, the claims formulated there by the taxpayer (which would constitute an act of second instance), and that the Claimant administratively contested the tax assessment act in accordance with article 131 of the CPPT, and that the Tax Administration denied/refused the review of the act to the extent requested of it.

However, according to the Respondent TA, despite the Claimant having made allusion to and identified these circumstances, it did not formulate/specify to the Court any petition aimed at the annulment of what was decided in that context. Not having done so, there does not exist the support that could establish the timeliness of the petition and, consequently, the possibility of the Court reviewing the petition formulated regarding the assessment act. In support of this assertion, it invokes various arbitral awards, transcribing excerpts from those rendered in the context of cases No. 261/2013-T and 38/2015-T.

Thus, according to the Respondent TA, being the powers of cognition of the Court limited by the petition and not being able to exceed it, it is prevented from reviewing and pronouncing on the petition concretized by the Claimant – "declaration of illegality of the assessment act" – because the same is untimely. The conclusion of the Respondent TA is formulated in the following terms: resulting clear and unequivocally from the learned initial petition the direct contest of the self-assessment act, the petition formulated (leading to the declaration of illegality of the act and, consequently to its annulment) must be declared inadmissible, as untimely and, consequently, the Respondent Entity absolved of the suit – cf. paragraph e) of article 278(1) of the Civil Procedure Code in force, applicable ex vi article 29(1)(e) of Decree-Law No. 10/2011 of 20 January.

In response to the invoked exception of expiration of the right to contest the tax act in arbitral proceedings, the Claimant expounds the following considerations, condensed in what is considered relevant for its review:

In the petition for arbitral pronouncement explicit mentions are made to the administrative review in its paragraphs 13; 22; 23; 24 and 80.

In point 22, the Claimant expressly declares that it is the denial of the claim (administrative review) that leads it to submit the matter to the review of the arbitral tribunal. In other words, the cause of action is the denial, but the petition is, because it cannot but be, the annulment of the self-assessment, which is what can legally be asked of the arbitral tribunal. What is asked is that the self-assessment be annulled because the administrative review was denied, when it should not have been, so the tribunal will have to refer to and pronounce on these two facts, just as the petition for pronouncement (that the self-assessment is unlawful and that the administrative review should not have been denied). It invokes, to support it, what was decided in the award rendered in case No. 262/2015-T.

And concludes: now, in view of what is at issue in the present case, this same understanding cannot but be reached, given that: - the norm of the RJAT lends itself to ambiguity, since it provides that the tribunal is competent to pronounce on the legality of the assessment act; - the petition for pronouncement made is formulated on the denial of the administrative review presented to the TA; - the deadline for the petition for pronouncement is counted from the notification of the order denying the administrative review; - the exception invoked by the TA cannot but be dismissed. Pursuant to article 10(1)(a) of the RJAT, the 90-day period is counted from the facts provided for in article 102(1) and (2) of the CPPT. Paragraph e) of article 10(1) provides for the situation of the administrative review, so that from the notification of the denial of its administrative review, the Claimant has a 90-day period to present the petition for arbitral pronouncement. Considering that the date of this notification took place on 4 May 2017, the submission of the petition to the Arbitral Court by 2 August 2017 is within the deadline provided by article 10(1)(a) of the RJAT.

In consideration:

The petition for annulment of the self-assessment of the Contribution on the Banking Sector is the petition that – ultimately – the Claimant would always have to formulate, since it is the review of the legality of the same that it specifically brings to court. Therefore, it is the alleged illegality of that self-assessment – not eliminated by the decision that fell on the administrative review – whose judicial review is being requested.

As results from the petition and the case file, the concrete question of the alleged illegality in the self-assessment was reviewed in administrative review proceedings and the existence of a defect generating it was not recognized there, more precisely of the defect alleged by the then Claimant, now Claimant, so that the decision that addressed the administrative review resulted in the maintenance in the legal system of the self-assessment. The object of the present case is – and is with propriety – the analysis of the substance of the defect of violation of law, whose knowledge by the Tax Administration was raised through the filing of an administrative review, as it had to be, given the provision in article 131(1) of the Tax Procedure and Process Code, and was judged groundless there. As the Claimant correctly alleges, the cause of action is the denial of its administrative review, but the petition is, because it cannot but be, the annulment of the self-assessment. Thus, it is from the notification of the decision on that, whose content and meaning – those of leaving in force in the legal system the self-assessment under review – constitutes the cause of action, that the deadline for attacking such self-assessment is counted. The rest is a matter of interpretation of the petition articles, which raises no doubts for the tribunal. Now, the deadline for raising, through the petition for constitution of the arbitral tribunal, the annullability of the self-assessment maintained in the legal system by the denial of the administrative review, is that established in article 10(1)(a) of the RJAT, that is, 90 days counted "from the facts provided for in paragraphs 1 and 2 of article 102 of the Tax Procedure and Process Code, regarding acts subject to independent contestation and, as well, from the notification of the decision or the term of the legal period for decision of the hierarchical appeal."

The Respondent TA is therefore not correct.

The petition for arbitral pronouncement was filed in a timely manner.

No other exceptions were invoked.

The Parties enjoy legal personality and capacity, are legitimate as to the petition for arbitral pronouncement and are properly represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011 of 22 March.

No nullities are found, so it is necessary to know of the merits.

III. SUBSTANTIATION

The Facts

A – Facts Proven

The Tribunal considers the following facts to be proven:

• The Claimant is the branch in Portugal of B..., SA, a company incorporated under Spanish law.

• On 29 June 2016 the present Claimant proceeded, by reference to the year 2016, to the payment of the Contribution on the Banking Sector (hereinafter abbreviated as "CSB") in the amount of €61,173.37 (sixty-one thousand one hundred and seventy-three euros and thirty-seven cents) – cf. docs. 1 and 3 attached to the case file.

• By considering that such contribution was not owed, it came, on 8 February 2017, to file an administrative review against the aforementioned self-assessment, in accordance with article 131 of the CPPT.

• The above-mentioned administrative review was instituted under No. …2017….

• Through Official Letter No. … of 03 May 2017, the Claimant was notified of the order denying the administrative review filed, rendered on 26.04.2017.

• Following that act of express denial of the administrative review, the Claimant came, on 21 July 2017, to present the present petition for arbitral pronouncement.

B. Facts Not Proven

No other relevant or essential fact for the review of the petition was proven or not proven.

C. Reasoning Regarding the Evidence

The judge (or the arbitrator) does not have the duty to pronounce on all the matters alleged, but rather the duty to select only that which is relevant for the decision, taking into account the cause (or causes) of action that supports the petition formulated by the plaintiff (cf. articles 596(1) and 607(2) to (4) of the Civil Procedure Code, as amended by Law No. 41/2013 of 26/6) and to state whether it is considered proven or not proven (cf. article 123(2) of the Tax Procedure and Process Code).

According to the principle of free assessment of evidence, the Tribunal bases its decision, regarding the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the case and in accordance with its experience of life and knowledge of persons and the world (cf. article 607(5) of the Civil Procedure Code, as amended by Law 41/2013 of 26/6). Only when the probative force of certain means is pre-established by law (e.g., full probative force of authentic documents – cf. article 371 of the Civil Code) does the principle of free assessment of evidence not dominate in the assessment of the evidence produced.

In the case, the Tribunal formed its conviction based on the critical analysis of the documents submitted by the parties and which were not contested and on the copy of the instructive administrative file, also taking into account that no controversy was surprising between the parties regarding the factual framework.

III SUBSTANTIATION (cont.)

The Law

The epicenter of the disagreement opposing the parties in this case lies in the subjection, or not, of the Claimant to the Contribution on the Banking Sector (hereinafter briefly referred to as CSB), specifically to determine if, given the amendment introduced by Law No. 7-A/2016 of 30 March (SOB 2016), to the CSB regime, approved by Law No. 55-A/2010 of 31 December (SOB 2011), namely regarding its subjective scope of application, the Claimant is, or is not, subject to that contribution.

The Claimant contends that it is not subject to the CSB since it cannot be considered a branch in Portugal of a credit institution with principal and effective headquarters outside Portuguese territory, as provided for in article 2(1)(c) of the CSB regime.

The Claimant sustains this understanding on the fact that the company that comprises it is not considered in Spain a credit institution, being registered with the Bank of Spain as "other institution", and that the activity carried out by both consists of the granting of credit, factoring and financial leasing, not encompassing the receipt of deposits and other reimbursable funds, so they do not fit within the concept of credit institution as provided for in paragraph 2 of article 2 of the CSB regime, in which credit institutions, branches and subsidiaries are considered as those defined in paragraphs w), u) and ll) of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December.

The Tax and Customs Authority, in turn, advocates the subjection of the Claimant to the CSB, essentially because the Bank of Portugal considers it a branch of a credit institution, sustaining this position on information drawn from the Bank of Portugal website, which is attached as document No. 5 to the petition for arbitral pronouncement and is contained in the case file attached to the proceedings.

That said, and before proceeding, it is important to emphasize that the object (mediate) of these proceedings is the self-assessment of CSB No. …, in the amount of € 61,173.37, referring to the year (of the contribution) of 2016 (cf. document No. 1 attached to the petition for arbitral pronouncement), which the Claimant paid on 29 June 2016 (cf. document No. 3 attached to the petition for arbitral pronouncement).

CONTRIBUTION ON THE BANKING SECTOR: SUBJECTIVE SCOPE OF APPLICATION

The CSB was created by Law No. 55-A/2010 of 31 December (SOB 2011), in whose article 141 is approved and established the respective legal regime.

In article 2 of the CSB regime is set forth the scope of its subjective application, and thus established as follows:

"Article 2

Subjective Scope of Application

1 – Taxpayers of the contribution on the banking sector are:

a) Credit institutions with principal and effective headquarters for administration located in Portuguese territory;

b) Branches in Portugal of credit institutions that do not have their principal and effective headquarters for administration in Portuguese territory;

c) Branches in Portugal of credit institutions with principal and effective headquarters outside the European Union.

2 – For purposes of the foregoing, credit institutions, branches and subsidiaries shall be considered those defined, respectively, in article 2 and in paragraphs 1 and 5 of article 13 of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December."

Pursuant to article 8 of the CSB regime, "[t]he taxable base defined by article 3, the rates applicable in accordance with article 4, as well as the rules for assessment, collection and payment of the contribution are subject to regulation by ordinance of the Minister of Finance, after hearing the Bank of Portugal".

Pursuant to the provision in the aforementioned article 8 of the CSB regime, Ordinance No. 121/2011 of 30 March was approved, having as its object the regulation of the CSB, as well as its conditions of application.

Article 2 of Ordinance No. 121/2011 of 30 March, heading "Subjective Scope of Application", replicates article 2 of the CSB regime.

In articles 2 and 13, paragraphs 1 and 5, of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December, in the wording in force at the time, to which article 2(2) of the CSB regime and Ordinance No. 121/2011 referred, we shall find set forth the concepts of credit institutions, branches and subsidiaries, in the following terms:

"Article 2

Credit Institutions

1 – Credit institutions are companies whose activity consists of receiving from the public deposits or other reimbursable funds, in order to apply them on their own account through the granting of credit.

2 – Companies that have as their object the issuance of means of payment in the form of electronic money are also credit institutions."

"Article 13

Definitions

For purposes of this act, the following are understood as:

1st 'Branch' the legal person in relation to which another legal person, designated as parent company, finds itself in a relationship of control or dominion, it being further considered that a branch of a branch is equally a branch of the parent company on which both depend;

(…)

5th Subsidiary: establishment of a company devoid of legal personality and which directly carries out, in whole or in part, operations inherent to the company's activity;

(…)"

The aforementioned article 2 of the CSB regime, concerning the subjective scope of application, was amended by Law No. 7-A/2016 of 30 March (SOB 2016), and came to establish as follows:

"Article 2

Subjective Scope of Application

1 – Taxpayers of the contribution on the banking sector are:

a) Credit institutions with principal and effective headquarters for administration located in Portuguese territory;

b) Branches in Portugal of credit institutions that do not have their principal and effective headquarters for administration in Portuguese territory;

c) Branches in Portugal of credit institutions with principal and effective headquarters outside Portuguese territory.

2 – For purposes of the foregoing, credit institutions, branches and subsidiaries shall be considered those defined, respectively, in paragraphs w), u) and ll) of article 2-A of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December."

As results from article 218 of Law No. 7-A/2016 of 30 March, this legal instrument entered into force on 31 March 2016.

In consonance with this legislative amendment, article 2 of Ordinance No. 121/2011 of 30 March was amended by Ordinance No. 165-A/2016 of 14 June, and came to replicate the now effective article 2 of the CSB regime.

In article 3 of Ordinance No. 165-A/2016 of 14 June, it is determined that this legal instrument enters into force on 15 June 2016, producing effects from 1 January 2016.

By way of the reference made by article 2(2) of the CSB regime and Ordinance No. 121/2011, in the versions resulting from the amendments introduced in 2016, we shall now find set forth the concepts of credit institutions, branches and subsidiaries in paragraphs w), u) and ll) of article 2-A of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December, in the version then in force:

"Article 2-A

Definitions

For purposes of the provision of this General Regime, the following are understood as:

(…)

u) «Branch», the legal person in relation to which another legal person, designated as parent company, finds itself in a relationship of control or over which the Bank of Portugal considers that the parent company exercises a dominant influence, it being further considered that a branch of a branch is equally a branch of the parent company on which both depend;

(…)

w) «Credit Institution», the company whose activity consists of receiving from the public deposits or other reimbursable funds and in granting credit on its own account;

(…)

ll) «Subsidiary», the establishment of a company devoid of legal personality and which directly carries out, in whole or in part, operations inherent to the activity of the company of which it forms part."

It results from this normative review that, with the amendment introduced in 2016 to the CSB regime, its subjective scope of application was broadened, coming to encompass branches in Portugal of credit institutions with principal and effective headquarters outside Portuguese territory, with effects from 1 January 2016; and that it should be understood by credit institution the company whose activity consists of receiving from the public deposits or other reimbursable funds and in granting credit on its own account and by branch the establishment of a company devoid of legal personality and which directly carries out, in whole or in part, operations inherent to the activity of the company of which it forms part.

THE SPECIFIC CASE: SUBJECTION OF THE CLAIMANT TO THE CSB

As was proven, the company of which the Claimant is the branch – the B... – with principal and effective headquarters in Spain, is a financial credit establishment, being registered with the Bank of Spain as "Other institution", and that, in accordance with its respective bylaws, the activity carried out comprises the granting of credit, factoring and financial leasing, expressly excluding the practice of acts of receipt of deposits or other reimbursable funds (cf. documents No. 4, 5 and 6 attached to the petition for arbitral pronouncement).

In this conformity, it results plainly evident that the company of which the Claimant is the branch in Portugal constitutes a financial company (making the necessary adjustment to the terminology used in Portuguese law) – in light of European legislation [maxime, EU Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013, on prudential requirements for credit institutions and investment firms and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and prudential supervision of credit institutions and investment firms] and, to that extent, necessarily in light of both Spanish legislation and Portuguese legislation (GRCIF) – whose object encompasses the activities of financial credit companies, factoring companies and financial leasing companies [articles 2-A, paragraphs z), subparagraph ii), and kk), 6(1)(b), subparagraphs i), iii) and iv), of the GRCIF], being these therefore the activities carried out by the Claimant, which can carry out the operations permitted by the legal and regulatory norms governing its activity (article 7 of the GRCIF); specifically, the Claimant, in the pursuit of the activities of credit granting, factoring and financial leasing, must comply with the legal norms contained, respectively, in Decree-Law No. 100/2015 of 2 June, Decree-Law No. 171/95 of 18 July and Decree-Law No. 72/95 of 15 April.

It is important to stress that the TA does not contest that the B... is not considered by the Bank of Spain as a credit institution, nor does it refute that the Claimant carries out, solely, operations within the scope of the granting of credit, factoring and financial leasing, as operations inherent to the activity of the company of which it forms part.

The TA, as stated above, sustains its position to the effect that the Claimant is subject to the CSB, on information drawn from the Bank of Portugal website, from which it results that the Claimant is classified in the type "Branches of CI with headquarters in the EU"; that is, it relies on this argument of a purely formal order, without alluding to or attending to, even superficially, the materiality underlying it, that is, to what is the object of the B... and, by inherence, to what are the activities carried out by the Claimant in the Portuguese financial market.

Moreover, contrary to what the TA intends, we consider that such information extracted from the Bank of Portugal website, without any other support, does not have the probative capacity that the TA seeks to confer upon it, because, although it is information with the aforementioned origin, it is not known when the data contained therein were inserted, what the current status of the same and, therefore, whether that information accurately depicts what in 2016 was the classification of the Claimant, as an entity acting in the national financial market, with the Bank of Portugal. Indeed, the Bank of Portugal itself takes care to insert, on its website, legal notices that reinforce what has just been stated, such as the following (cf. https://www.bportugal.pt/page/avisos-legais): "The Bank of Portugal seeks to ensure, as far as possible, the currency and accuracy of information and to minimize the inconveniences caused by any technical failures." and "The general information that the Bank of Portugal discloses through this portal is intended exclusively to guide and clarify users. The information disclosed does not have binding force in the resolution of any disputes, nor constitutes professional or legal opinion or advice, recommendation, invitation or suggestion to adhere to any kind of banking service."

Given the above, we therefore conclude that the Claimant is not a branch in Portugal of a credit institution with principal and effective headquarters outside Portuguese territory, so it does not fall within the norm of subjective scope of the CSB set forth in article 2(1)(c) of the CSB regime, and is thus not subject to this contribution.

That said. In another order of considerations and without prejudice to the above, it is also important to state that even if the Claimant were – which, we reiterate, it is not – a branch in Portugal of a credit institution with principal and effective headquarters outside Portuguese territory, it would only be subject to the CSB from 1 January 2016, so that the self-assessment of CSB in question and the submission of the respective amount of contribution to the State's coffers would always prove to be unduly made.

In this context, it is important to begin by invoking the following provisions of Ordinance No. 121/2011 of 30 March:

Article 6

Procedure and Form of Assessment

1 – The contribution on the banking sector is assessed annually by the taxpayer through the official form No. 26, which is approved and set out in the annex to this ordinance.

2 – The taxable base determined in accordance with articles 3 and 4 is calculated by reference to the average annual final balances of each month, which correspond to the accounts approved in the year in which the contribution is due.

3 – The declaration referred to in paragraph 1 is sent by electronic data transmission by the last day of the month of June, and can be obtained by printing on paper in A4 format from the website www.portaldasfinancas.gov.pt.

4 – The assessment provided for in paragraph 1 can be corrected by the tax administration within the deadlines provided for in articles 45 and 46 of the general tax law, if errors or omissions are found that determine the requirement of a contribution amount higher than the assessed.

5 – In the absence of assessment of the contribution in accordance with paragraph 1, it is based on the elements available to the tax administration.

Article 7

Payment

1 – The contribution on the banking sector due is paid by the last day of the deadline established for the sending of the declaration referred to in the previous article at the legally authorized collection points.

2 – If the contribution is not paid by the end of the respective deadline, compensatory interest begins to accrue immediately and collection of the debt is promoted by the tax administration, in accordance with the Tax Procedure and Process Code.

3 – The rules provided for in the general tax law and in the Tax Procedure and Process Code are applicable, namely regarding inspection and appeals to the tax procedural remedies.

Moreover, in the instructions for completion of the official form No. 26 (through which the CSB is self-assessed), attached to Ordinance No. 121/2011 of 30 March, in the applicable wording, the following is expressly stated in the "General Observations":

"4 – The declaration is sent annually by electronic data transmission, by the last day of the month of June of the year following that to which it relates.

5 – The taxable base determined is always calculated by reference to the average annual final balances of each month, which correspond to the accounts approved in the year in which the contribution is due."

Now, as was well considered in the substantiation put forth in the arbitral decision rendered in the context of case No. 139/2017-T of the CAAD, to which we adhere and to which, with all respect, we make our own:

"The actual taxable base of the CSB, applied to branches, in the terms set forth above, comes to be the taxable income determined by the average balances of liabilities determined by accounting, with reference to all the months of the year. In turn, these average balances can only be determined with accuracy after the approval of accounts, because until then, adjustments or corrections may be made, determined by account audits and consequent corporate action.

Thus, being so, there is no doubt that the tax designated as CSB applies to taxable facts occurring throughout the economic year, provided they are fully verified and consolidated as of 31 December of each year.

(…) we conclude, easily and without need for great legal constructions, that the legislator was clear regarding the entry into force of the amendments introduced regarding the CSB, which can only be applied to facts occurring in 2016, with the final note of retroacting the effects from 1 January 2016.

(…) there is no doubt that nothing in the legal regime applicable to the CSB, instituted by the SOB for 2016 and regulated by the aforementioned Ordinance, permits us to conclude, as the TA did in the contested acts, that starting in 2016 this contribution would apply to facts occurring in 2015.

On the contrary, the legislator was clear when defining the scope of the actual incidence of this contribution, to be applied, from 2016, also to branches. Moreover, it was very clear when, in article 3 of the Ordinance, it provides on the entry into force and effects of the new regime, delimited to the year 2016.

Now, there is no seeing that we have any other criterion to apply to the case, except the same that constitutes a rule in all taxes, whether taxes or contributions of a fiscal nature, such as the one now analyzed, which is that the new law applies for the future and only for the future. But, if there were doubts, the letter of the law is absolutely clarifying when it expressly declares that it applies only and solely from the year (exercise) of 2016.

In any case, the concrete situation under review could be compared, by absurdity, to the attempt to apply the new rules instituted by the SOB of 2016 regarding personal income tax to tax declarations filed in the year 2016.

To which must be added, as well results from article 12 of the General Tax Law, that tax provisions apply to facts subsequent to their entry into force (paragraph 1) and when they are of successive formation (as is the case) the new law applies only to the period elapsed from its entry into force (paragraph 2).

(…) the regime instituted by the SOB for 2016 is in force, by force of the text of the legal instrument regulating it itself, only for the future, that is for taxable facts occurring in the period of 2016.

The concrete application of this new regime, carried out by the TA, contradicts expressly the legal regime itself instituted by the SOB for 2016 in attempting to tax starting in this same year the contribution by reference to taxable facts occurring in 2015. It will be said that this is a glaring error in the application of law, solely the responsibility of the TA and without any legal support for doing so, violating from the outset the very letter of the law.

It will be said that, as is obvious, the application of the CSB to branches, created by the SOB for 2016, making it incide on taxable facts occurring in the past (in 2015), when such obligation did not exist, violates constitutional principles (…), with emphasis on the principle of non-retroactivity of taxation.

(…) There is, therefore, no doubt that the new CSB regime instituted applies to the year 2016, which is to say that the first self-assessment of CSB should occur in 2017, by reference to taxable facts formed throughout the year 2016."

In these terms, the CSB self-assessment impugned suffers from a defect of violation of law, by error regarding the factual and legal assumptions, embodied in the erroneous application of the provision in article 2, paragraphs 1(c) and 2, of the CSB regime, in the wording resulting from Law No. 7-A/2016 of 30 March, and in article 2, paragraphs 1(c) and 2, of Ordinance No. 121/2011 of 30 March, in the wording resulting from Ordinance No. 165-A/2016 of 14 June, which justifies its annulment (article 163(1) of the APA, subsidiarily applicable, by force of the provision in article 2(c) of the LGT).

The act denying the administrative review No. …, insofar as it maintained that self-assessment of CSB, suffers from an equal vitiating defect, so it too must be annulled (article 163(1) of the APA, subsidiarily applicable, by force of the provision in article 2(c) of the LGT).

REFUND OF THE AMOUNT PAID AND PAYMENT OF COMPENSATORY INTEREST

The Claimant petitions, further, the condemnation of the Tax Administration to refund the CSB unduly paid, in the amount of € 61,173.37 (sixty-one thousand one hundred and seventy-three euros and thirty-seven cents), plus the respective compensatory interest.

Article 24(1)(b) of the RJAT provides that the arbitral decision on the merits of the claim that is not subject to appeal or contest binds the tax administration from the end of the deadline provided for appeal or contest, and this must, in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for spontaneous execution of the decisions of the tax courts, restore the situation that would have existed by adopting the acts and operations necessary for that purpose, which should be understood, in accordance with the provision in article 100 of the LGT, applicable ex vi paragraph a) of article 29(1) of the RJAT, as encompassing the payment of compensatory interest, in consonance, moreover, with the provision in paragraph 5 of article 24 of the RJAT.

Article 43(1) of the LGT determines that "compensatory interest is due when it is determined, in administrative review or judicial contest, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due", resulting from paragraph 2 of the same article that it is also considered "there is error attributable to the services in cases where, despite the assessment being made based on the taxpayer's declaration, the latter followed, in its completion, the generic guidelines of the tax administration, duly published"; in turn, paragraph 5 of article 61 of the CPPT, in the part to be considered here, determines that interest is counted "until the date of processing of the respective credit note, in which they are included".

In the concrete case, having been proven that the Claimant proceeded to the full payment of the amount of self-assessed CSB (cf. document No. 3 attached to the petition for arbitral pronouncement), it has the right, in accordance with the provision in article 24(1)(b) of the RJAT and article 100 of the LGT, to the refund of that amount of CSB unduly paid – € 61,173.37 (sixty-one thousand one hundred and seventy-three euros and thirty-seven cents) – plus compensatory interest, in accordance with the provision in article 43(1) of the LGT and article 61 of the CPPT, calculated from the date of denial of the administrative review No. …[1], at the rate resulting from article 43(4) of the LGT, until the date of processing of the respective credit note, in which they are included.

IV. DECISION

In the terms set forth, this Arbitral Court hereby agrees to judge the petition for arbitral pronouncement to be entirely well-founded and, consequently:

Declare illegal and annul, by error regarding the factual and legal assumptions, the act denying the administrative review No. …;

Declare illegal and annul, by error regarding the factual and legal assumptions, the act of self-assessment of CSB No. …, in the amount of € 61,173.37 (sixty-one thousand one hundred and seventy-three euros and thirty-seven cents);

Judge well-founded the petition for condemnation of the Tax and Customs Authority to refund to the Claimant the amount of CSB unduly paid – € 61,173.37 (sixty-one thousand one hundred and seventy-three euros and thirty-seven cents) – plus compensatory interest calculated at the legal rate, from the date of denial of the administrative review No. … until the date of processing of the respective credit note, in which they are included;

Condemn the Tax and Customs Authority to payment of the costs of the proceedings.

VALUE OF THE CASE

In accordance with the provision in articles 306(2) of the CPC, 97-A(1)(a) of the CPPT and 3(2) of the Regulations for Costs in Tax Arbitration Proceedings, the case is fixed at a value of € 61,173.37 (sixty-one thousand one hundred and seventy-three euros and thirty-seven cents).

COSTS

In accordance with article 22(4) of the RJAT, the amount of costs is fixed at € 2,448.00 (two thousand four hundred and forty-eight euros), in accordance with Table I attached to the Regulations for Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 15 March 2018

The Collective Arbitral Court,

(José Poças Falcão)

(Ricardo Rodrigues Pereira)

(Luís M. S. Oliveira)

[1] As Jorge Lopes de Sousa points out, in cases "where the practice of the act that defines the tax debt falls to the taxpayer (as occurs, namely, in the aforementioned cases of self-assessment, withholding at source and advance payments), (…), the error will become attributable to the Tax Administration after the possible denial of the claim presented by the taxpayer, that is, from the moment that, for the first time, the Tax Administration takes a position on the taxpayer's situation, having the elements necessary to make a decision with correct assumptions." (On the Civil Liability of the Tax Administration for Unlawful Acts, Lisbon, Áreas Editora, 2010, p. 52).