Stamp Tax on Cash Pooling: Exemption and Territoriality Principle - CAAD Case 452/2018-T

Arbitral Decision (consult full version in PDF)

The arbitrators Counselor Jorge Lopes de Sousa (arbitrator-president), Dr. Pedro Miguel Bastos Rosado and Prof. Dr. Maria do Rosário Anjos (arbitrator members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 20-11-2018, agree as follows:

1. Report

A..., S.A., holder of collective identification number..., with registered office at ..., Street ..., ...-... Lisbon, within the jurisdiction of the Lisbon Tax Service..., hereinafter abbreviated as "APPLICANT", has, pursuant to Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), requested the constitution of an Arbitral Court.

The Applicant requests the Annulment of tax acts assessing STAMP DUTY No. 2018..., in the amount of € 138,521.74, and respective tax assessment acts of COMPENSATORY INTEREST Nos. 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., which total € 17,369.21, all in a total amount of €155,890.95.

The Applicant further requests compensatory interest.

Subsidiarily, it requests that, in the event of rejection of the aforementioned claims, a preliminary reference be made of the present proceedings to the CJEU, under article 267 of the Treaty on the Functioning of the European Union.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral court was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 12-09-2018.

Pursuant to the provision in subsection a) of paragraph 2 of article 6 and subsection b) of paragraph 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Arbitrators who were initially appointed by the Deontological Council communicated acceptance of the assignment within the applicable time period.

On 31-10-2018 the parties were duly notified of such appointment and did not manifest any intention to refuse the appointment of arbitrators, pursuant to articles 11, paragraph 1, subsections a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision in subsection c) of paragraph 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral court was constituted on 20-11-2018.

The Tax and Customs Administration submitted a Reply in which it argued that the request for arbitral decision should be judged without merit.

By ruling of 17-01-2019, the meeting provided for in article 18 of RJAT was dispensed with and it was decided that the proceedings should continue with simultaneous written submissions.

The Parties submitted their submissions.

The arbitral court was duly constituted, in accordance with the provision in articles 2, paragraph 1, subsection a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.

The Parties are duly represented, enjoy judicial personality and capacity, are legitimate and represented (articles 4 and 10, paragraph 2, of the same diploma and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not affected by nullities.

2. Factual Matters

2.1. Established Facts

The following facts are considered established:

• The Applicant, with NIPC..., is a company belonging to the B... group, with registered office at Street ..., in ... Lisbon, and its corporate purpose is "Auxiliary activities of air transport", classified under CAE 52230;

• On 31-12-2014, C... (C...), with registered office in ..., in Belgium, held the totality of the company's capital;

• On 16-05-2014, the Applicant signed with D..., SGPS, S.A. ("D...") a centralized treasury management contract called "Centralised Cash Management Agreement", in the terms of which it formalized its accession to the cash pooling mechanism used by the entities of GROUP D..., which has as "MASTER ACCOUNT HOLDER" E..., S.A., resident in BELGIUM (document No. 6 attached with the request for arbitral decision, whose contents are given as reproduced);

• The Applicant also concluded similar contracts with its subsidiaries (F... and G...), since they also joined said cash pooling;

• Under service order No. OI 2016..., of external nature and partial scope (CIT and Stamp Duty), relating to the year 2014, inspection acts were carried out, which occurred between June 2016 and May 2017:

• In the aforementioned inspection, the Draft Report was prepared, which is contained in document No. 1 attached with the request for arbitral decision;

• The Applicant exercised the right to hearing on the Draft Report of the Tax Inspection in the terms contained in document No. 2 attached with the request for arbitral decision;

• Following the exercise of the right to hearing, the Tax and Customs Authority maintained the entirety of the Stamp Duty corrections initially proposed, in the Tax Inspection Report contained in document No. 3 attached with the request for arbitral decision, in which it refers, among other things, to the following:

III - DESCRIPTION OF FACTS AND GROUNDS OF MERELY ARITHMETIC CORRECTIONS TO THE TAX BASE

(...)

III.2 - CORRECTIONS TO TAX DUE

III.2.1 - STAMP DUTY (IS)

III.1.2.1 - "Centralized cash management agreement" - Treasury Surpluses (item 17.1.4 of TGIS) -€ 138,521.74

i) Facts

The taxpayer began its participation in the Group B... cash pooling system on 24 June 2014.

According to point 6.2 Financial Situation of the 2014 Management and Accounts Report (included in the tax file submitted by the taxpayer) it is indicated that "there is recorded the amount of treasury surpluses of Group A... applied in the cash pooling system and that, on 31 December 2014 it was approximately €63.8 million".

From the analysis of the analytical trial balance before profit determination (included in the tax file submitted by the taxpayer), on that same date, it is found that the amounts transferred by the taxpayer to C... (C...), in the context of its participation in the cash pooling mechanism of Group D..., registered in account 25310000 - Acc-Empr.Emp.Mother shows a debtor balance of €63,773,873.90 (includes the amount of €17,420,858.24, referring to treasury surpluses of F... (account 25210300 - Acc-Emp.Gr-Loan)), which are applied through A... in the Group B... cash pooling system. And as a result of the making available of those funds, during the 2014 tax period, the taxpayer recorded as revenues in accounts 78110111 - JO-Cash Pool.(B...) and 78110112 - JO-Cash Pool.(F...) the amounts of €20,871.85 and €12,659.20, respectively, referring to remuneration for the transfer of its treasury availabilities, which totaled the amount of €33,531.05. However, no evidence was identified that the fund transfers had been subject to taxation under Stamp Duty.

And from the reading of the Transfer Pricing Report for the 2014 tax period, made available by the taxpayer, notably, as to its point 4.2.3.3 Cash-pooling, the following facts are identified:

"In order to apply treasury surpluses, and in order to finance itself occasionally through the Group, the B... Group implemented a cash-pooling system to be used by the Group entities.

(...)

In this context, A... concluded a cash-pooling contract with the Group, the amount of which on 31 December 2014 made up a credit balance of 63,773,974 euros. A... also concluded similar contracts with its subsidiaries (F... and G...), since they also participate in cash-pooling, but for the purpose of payment/receipt of interest are represented by A... .

Given the above, and taking into account its credit position for most of the period, A... earned a total of interest in the amount of 33,531 euros from C... . Further to this cash-pooling operation, A... charged approximately 10,526 euros and 2,133 euros to F... and G..., respectively."

In accordance with the clarifications requested from the taxpayer, it came to indicate (Annex V) that it participates in a centralized treasury management system, identified as Physical Cash Pooling implemented by the B... Group, through accounts opened with banks H... and I... .

And that the transfer of funds arising from the Cash Pooling referred to above is supported by a contract concluded between A... and C... (C...), international pool leader, resident in Belgium, and which is the holder of all of A...'s capital. It being that the transfer of funds between bank accounts is carried out on a daily basis, in which the two banking institutions referred to above are mere service providers.

Under the aforementioned contract - the "Centralised Cash Management Agreement' (made available by the taxpayer - Annex VI) - it is verified, in its recitals, that the parties wish to maximize their synergy through participation in a centralized treasury management system, which will allow the promotion of coordination and optimal use of their treasury surpluses and cover their cash flow needs.

And in its article 1 its objectives are defined, as follows:

The parties agree to permanently and systematically use the cash pooling system, which is coordinated by the Centralizing Company; the Centralized Company, A..., undertakes and accepts that the centralizing entity ensure the coordination and centralization of all its cash needs and excess liquidity in the short term so that it can benefit:

• From an optimization of its cash management

• From a reduction of the weighted average cost of its financing and, consequently, of its financial and banking charges;

• From a fair return on its cash surpluses.

Therefore, as expressed in article 2 of that agreement, it is confirmed that A... entrusts the centralizing entity with the management of its surpluses and cash needs. And, as such, that entity will be responsible, in particular, for the receipt of funds corresponding to A...'s cash surpluses and for making available to A... the funds necessary to cover its treasury needs.

And, pursuant to its article 6, this agreement has no defined term.

On the other hand, as expressed in appendix 2 of that agreement, is identified as "the Master Account Holder" (main account holder) E... SA (BE...), resident in Belgium.

ii) Position of the taxpayer

The taxpayer did not assess Stamp Duty on its transfers of funds to the centralizing entity during the 2014 tax period.

In those terms, it was requested to justify the tax treatment applied to these operations, and it presented the following understanding (Annex V): "The transfers of funds made in the context of the aforementioned Cash Pooling fall within the exemptions from stamp duty, in light of the changes introduced by the 2014 Budget, effective 1 January 2014.

The exemption is applicable given that:

• Cash Pooling is used to meet short-term treasury deficiencies, in the perspective of a current account between C... and A...;

• C... is resident in a Member State of the EU;

• The entities are in a relationship of control and group;

• None of the entities is a credit institution;

• The international pool leader (C...) has an account opened in Belgium (where the financial flows are concentrated), assuming itself as Master Account;"

iii) Legal Framework

a) Concept of credit

Item 17.1 of the General Table of Stamp Duty provides for taxation "For the use of credit, in the form of funds, goods and other values, by virtue of the granting of credit for any reason".

In this way, it becomes particularly important to define what should be understood as credit in order to be able to correctly delimit the contours of the operations at issue and, consequently, their classification under Stamp Duty.

In this context, it is relevant to observe what José Maria Pires states in his work "Banking Law, 2nd volume, Banking Operations" (Rei do Livros).

Thus, that author states, at page 181, concerning the notion of credit:

"In general terms, we can say that credit consists of an exchange in which there is no simultaneity between performance and counter-performance, that is, the concept of credit is analyzed in two performances separated by time."

And it continues:

"The intervention of the time factor in credit operations implies the verification of an economic cost, because the creditor temporarily renounces his goods and, furthermore, runs the risk of insolvency of the debtor. This means that the transfer of goods on credit is normally accompanied by a remuneration, interest."

Following this reasoning, it subsequently states:

"On the other hand, the aforementioned time factor, with its inherent risk, introduces another element of credit which, although of a psychological nature, is in some way a substitute for the real value of the counter-performance: the confidence placed by the creditor (lender) in the promise of payment of the debtor (borrower), that is, the strong conviction of the former that the commitment of the latter will be honored by him."

It then enumerates those it considers to be the elements of credit:

"Thus, we consider as elements of credit the following: time; risk; confidence; interest."

It concretizes this point with a definition of credit:

"After these clarifications, we believe that the following general notion of credit can be given, taking into account that we are within the scope of an economic notion and not a legal one:

Credit is an act of economic exchange in which the creditor performs a performance at a given moment in favor of another and accepts the risk of the respective counter-performance being deferred to a later or later moments, trusting in the timely fulfillment by the borrower and normally having the right to remuneration.

As stated in the sentence relating to the challenge case No. 6/11 of the Tax and Administrative Court of Sintra, of 20 February 2013 "Given the nature of that centralized treasury management system and its respective corporate purpose, there is no doubt in the present case as to whether they constitute transfer operations between the account of the participant and the account of the centralizing entity as to the surpluses placed at the disposal of that centralizing entity, which does not prevent the same from being able to have the excess funds made available by the centralizing entity for the benefit of the participants, taking into account that both one and the other constitute financings obtained or granted (and not a mere transfer of a thing, even if fungible, to another for it to keep, which characterizes the deposit) so the granting/use of credit are subject to tax, with entities domiciled in national territory being responsible for the assessment and delivery of the tax regarding operations carried out in national territory or that are recipients thereof (see No. 1, and subsection b), of No. 2, of art. 4 of Stamp Duty Code), regardless of the determination made of the tax base of the tax, in this sense J. Rebouta in "Tax Contextualization of Centralized Treasury Management in an International Environment" accessible through consultation of the properly identified Internet website for that purpose."

On the other hand, Mónica Sofia Rodrigues Marques, in "Company acquisition operation - tax strategy", of March 2013, emphasizes that "Short/medium/long-term credit operations are current, carried out between companies that make up a business Group. These operations are even more intense in Groups that adopt cash pooling models, with the objective of optimizing the management of surpluses and treasury deficiencies of the companies that comprise them. One of the cash pooling models is the "zero balancing cash pooling", in accordance with which Group companies have individual current accounts, whose debit or credit balances are regularized daily, as a counterpart to a bank account of the managing company. This can centralize payments to third-party entities, in particular suppliers, as well as receipts from third-party entities, in particular, from customers.

Whenever the treasury surpluses of Group companies, transferred to the managing entity's account, exceed the credits that this entity has against them, due to payments it has made on their behalf, the financial flows correspond to granting of credit by the Group companies to the managing company. Similarly, whenever the treasury surpluses are insufficient to cover the credits that the managing entity has to receive, the financial flows correspond to granting of credit by the managing entity, in favor of the Group companies."

It is verified that the funds transferred by A... exceed the funds obtained by it from the managing entity.

This difference takes the form of credit granted from the first to the second entity.

In this way, the funds transferred by A... to the centralizing entity, under a centralized treasury management contract, constitute financings granted subsequently used by that entity, as it sees fit.

b) (Skipped for brevity - discusses definitional aspects of credit as established)

c) Objective and Subjective Incidence

According to the principle of territoriality established by paragraph 1 of article 4 of the Stamp Duty Code (CIS), Stamp Duty applies to all facts referred to in article 1 of the same code, occurring in national territory.

For its part, paragraph 1 of article 1 of CIS states that "stamp duty applies to all acts, contracts, documents, titles, papers, and other facts or legal situations provided for in the General Table, including gratuitous transfers of property."

From the description above we find that, by reference from article 1 of CIS to the General Table of Stamp Duty (TGIS), all facts provided for in said table, which have occurred in national territory are subject to Stamp Duty.

From the reading of item 17 of TGIS it appears that, "Under the heading "financial operations", the scope of stamp duty includes the granting of credit, regardless of the nature of the granting entity and the user, alongside a set of financial operations, which result in interest and commissions, which are only subject to stamp duty taxation if carried out by credit institutions, financial companies, other entities legally equivalent to it and any other financial institutions".

Now, the transfer of treasury surpluses from the taxpayer to the centralizing entity corresponds to financing granted by the taxpayer to that entity, since these are financial operations of credit granting in the form of making funds available.

Since we are in the presence of a granting and use of credit, we have A..., the taxpayer in accordance with subsection b) of paragraph 1 of article 2 of CIS with registered office in Portugal, as the lending entity (grantor) and the centralizing entity as the borrowing entity (user), so the realization of the credit (making funds available) occurs in national territory, thus being an operation subject to Stamp Duty, in accordance with the principle of territoriality established in the aforementioned paragraph 1 of article 4 of CIS, being taxed at the rates provided for in item 17.1, with responsibility for the assessment and delivery to the State treasury of the Stamp Duty falling on the taxpayer in accordance with articles 23 and 41, both of CIS.

Given that the term, and its knowledge or not, are determining for the classification of a financial operation under Stamp Duty, both as to the determination of the moment of the tax obligation in accordance with article 5 of CIS, and as to the rate of Stamp Duty applicable and also to the verification, or not, of any exemption rules, it appears that the assessment of the term of the financial operation must be made at the moment this operation occurs, because only on that date will it be possible to proceed to the appropriate classification - without prejudice to the situations provided for in the Law in which the alteration of the term initially considered promotes the reclassification of the operation in that Stamp Duty.

The "Centralised Cash Management Agreement" provides, in its article 6, that the same is realized for an indefinite term, with no defined terms for the granting of credit.

From this it results that, for the purposes of classification under the rates of item 17.1.2 of TGIS and for determination of the moment of the tax obligation in accordance with article 5 of CIS, the credit in question was granted for an undefined or undeterminable term.

According to the law and the best doctrine (see the provision in article 278 of the Civil Code, under the heading Term), Terms, as conditions attached to contracts, are intended to provide for a certain, future and determined or determinable moment (term certain when and certain what), or certain, future and undetermined (term certain when and uncertain what, also called an uncertain term), from which the effects (initial term) or cease (final term) of a Legal Business.

Legal Businesses are, in our Law, subject to the general principle of freedom of contract, provided for in article 405 of the Civil Code, under which the parties may structure their relationships in order to adapt them to their claims and needs. The Term appears in this context as one of the accidental elements of Businesses, as typical accessory clauses that parties may attach to all or only part of the contracts they conclude.

If the Term is certain (certain when and certain what) we will be faced with a term, stipulated by the parties, from which a given negotial effect will occur (initial term), or will cease to occur (final term).

In the specific case, the parties did not define a specific calendar date for the reimbursement of the loans granted and the agreement itself has no defined term.

In view of the above, and because in this case the parties did not define a specific date for the reimbursement of the loans granted, it is concluded that there is no certain term for the reimbursement of the respective uses, making taxation in accordance with items 17.1.1 to 17.1.3 of TGIS impossible.

Thus, it is the circumstance of there being no determined or determinable reimbursement term that is relevant for tax purposes under item 17.1.4 of said table.

From this it results that this financing, for the purposes of classification under the rates of item 17.1 of TGIS and for determination of the moment of the tax obligation in accordance with article 5 of CIS, was granted for an undefined or undeterminable term.

For purposes of applying the rates provided for in item 17.1 and since the credit is used for an undefined or undeterminable term, the tax obligation is considered constituted on the last day of each month, being the rate to apply, that referred to in item 17.1.4 of TGIS, that is 0.04%, which, in accordance with the description entered in this item, applies "...on the monthly average obtained through the sum of the outstanding balances determined daily, during a month, divided by 30."

It is important to note that, "according to the understanding of the tax administration, the calculation of the tax should, in this case, be made based on balances - daily determined value (see Circular 15/2000). It is noted that the balances to be considered are, as expressly results from the rule in question, outstanding debit balances, being irrelevant for such counting the days in which there are credit balances."

For its part, from the reading of Circular 15, of 05/07/2000, from the Service Directorate of Stamp Duty and Heritage Transfers Taxes, the following point stands out, equally relating to item 17:

"23. In the aforementioned point 17.1 of the General Table, the use of credit is taxed, by virtue of its granting for any reason. The enumeration contained in that rule is merely exemplary and not exhaustive."

d) On the exemption rules for stamp duty

The exemptions provided for in subsections g) and h) of paragraph 1 of article 7 of CIS

Pursuant to paragraph 1 of article 7 of CIS, the following exemptions are considered in subsections g) and h):

g) Financial operations, including their respective interest, for a term not exceeding one year, provided they are exclusively intended for the coverage of treasury deficiency and carried out by venture capital companies (VCC) 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 voting capital or whose acquisition value is not less than (euro) 5,000,000, in accordance with the last agreed balance sheet and also carried out for the benefit of a company with which it is in a relationship of control or group;

h) Operations, including their respective interest, referred to in the preceding subsection, when carried out by holders of capital to entities in which they hold directly a participation in capital not less than 10% and provided that this has remained in their ownership during one consecutive year or since the constitution of the participated entity, provided that, in this latter case, the participation is maintained during that period;

Now, if we refer, specifically, to the necessary requirements for the same, as stipulated in said subsection g), we have that this exemption applies, in summary, to loans (including interest) granted by companies in favor of participated companies or with which they are in a relationship of control or group, provided that they are:

• Granted for a term not exceeding one year, and

• Exclusively intended for treasury deficiencies of these companies.

Note that these requirements are cumulative.

As such, we have that it is not enough that the participants are in a group relationship and that the duration of the transfer of funds does not exceed one year, it is also essential that these transfers be exclusively intended for the coverage of treasury deficiency.

And in this sense, see the arbitral decision relating to Case No. 76/2013-T emanated from the Arbitral Court (CAAD), from which it is extracted that the aforementioned subsection g) of paragraph 1 of the Stamp Duty Code "(...) speaks of operations «exclusively intended for coverage of treasury deficiency", and not mainly (or any other synonym) intended for that purpose".

The inapplicability of the exemptions contained in subsections g) and h) of paragraph 1, provided for in paragraph 2 of article 7 of CIS.

Paragraph 2 of article 7 of CIS stipulates that "The provision in subsections g) and h) of paragraph 1 shall not apply when any of the participants does not have registered office or effective management in national territory, except in situations where the creditor has registered office or effective management in another Member State of the European Union or in a State with which a convention for the avoidance of double taxation on income and capital agreed with Portugal applies, in which case the right to exemption remains, unless the creditor has previously carried out the financings provided for in subsections g) and h) of paragraph 1 through operations carried out with credit institutions or financial companies based abroad or with branches or offices abroad of credit institutions or financial companies based in national territory."

e) Classification of the transfers of funds made by the taxpayer during 2014

The taxpayer considers that said operations, although subject to Stamp Duty, benefit from the exemption provided for in article 7 of CIS and as such did not subject the credits granted to Stamp Duty.

As previously mentioned, it is its understanding that "The transfers of funds made in the context of the aforementioned Cash Pooling fall within the exemptions from stamp duty, in light of the changes introduced by the 2014 Budget, effective 1 January 2014" (Annex V). And that this exemption is applicable in so far as cash pooling is used to deal with short-term treasury deficiencies, in the perspective of a current account between the centralizing entity and A... and that these entities are in a relationship of control and group.

In these terms, and analyzing the arguments of the taxpayer in light of subsection g) of paragraph 1 of article 7 of CIS, we have that:

• as to the requirement that these financial operations be "carried out for the benefit of a company with which it is in a relationship of control or group", it is admitted to be fulfilled, insofar as the beneficiary entities were its sole shareholders;

• as to the duration of this transfer of funds, that is, compliance with a "term not exceeding one year"; we have distinct entities:

• D... as beneficiary (centralizing entity) of these funds, between 2014-06-24 and 2014-07-07, only 14 days, therefore less than one year;

• C... as beneficiary (centralizing entity) of these funds, between 2014-07-08 and 2014-08-07 to 2014-12-31, therefore less than one year.

• as to the requirement that these operations be "exclusively intended for the coverage of treasury deficiency", the taxpayer called upon to prove that its applications of treasury surpluses were exclusively intended for covering treasury deficiencies of the recipient entity (centralizer) of these funds, came by email message of 2017-01-30, to state that "...confirms that its applications of treasury surpluses result from the necessity to fulfill the contractual obligations assumed by it and other participants in the cash pooling structure current within the scope of Group B..., which is exclusively intended to meet their respective treasury deficiencies" (Annex VIII).

In truth, regarding the first two requirements, there will be no doubt in qualifying this financial operation as a transfer of short-term credit between intra-group companies, the same cannot be said regarding the third and last requirement enumerated above.

In fact, in order to prove the element of "exclusive use" of the funds for treasury deficiencies of the centralizing entity, the taxpayer, in invoking the exemption, should prove the existence of those treasury deficiencies on the part of the beneficiary entities of the same, D... and C... .

And, on the other hand, the taxpayer in invoking that "its applications of treasury surpluses result from the necessity to fulfill the contractual obligations assumed by it and other participants in the cash pooling structure current within the scope of Group B..., which is exclusively intended to meet their respective treasury deficiencies" (Annex VIII), is not considered correct. First, because the necessity to fulfill contractual obligations removes compliance with the necessary "exclusive use" of funds for treasury deficiencies, as the "Centralised Cash Management Agreement" itself (Annex VI) does not provide that only the A... treasury surpluses be made available when there are treasury deficiencies in the beneficiary entities, D... and C... .

What that agreement provides, in its articles 1 and 2, is that the parties agree to permanently and systematically use the cash pooling system, in which A... undertakes and accepts that the beneficiary entities, D... and C..., ensure the coordination and centralization of all its cash needs and excess liquidity in the short term. And, as such, they will be responsible, in particular, for the receipt of funds corresponding to A...'s cash surpluses and for the making available to A... of the funds necessary to cover its treasury needs.

And precisely because the contract itself provides nothing, or even refers to, the treasury situation of the beneficiary entities of the funds, the centralizing entities, when beginning its implementation, which would always be relevant data to assess whether the financial flows verified could occur or not in a context of deficiency thereof.

Nor can it be stated that the very "Centralised Cash Management Agreement" in existence implies that financial flows occur exclusively in situations of treasury deficiency. Since the contract itself admits the existence of accessory purposes in the cash pooling system, seeming not to heed that the rule that could welcome its claim speaks of operations "exclusively intended for coverage of treasury deficiency", and not mainly (or any other synonym) intended for that purpose.

However, it is verified that the taxpayer bases practically all its arguments on the understanding that, by nature, its applications of treasury surpluses should be considered exempt, given the existence of a contract and the necessity to fulfill the contractual obligations assumed by it, and from which it would inexorably follow that these operations would be exclusively intended to meet treasury deficiencies.

Now, the existence of a contract is merely a legal form which, obviously, may or may not have adherence in reality. That is, even if it were possible to understand that the strict execution of the contract in reality would not generate taxable operations, from that would not result, of itself, that this strict execution had actually occurred in reality, which would always have to be demonstrated, and in this case it was not.

In any case, the fact is that the "Centralised Cash Management Agreement' (with literal translation to Centralized Cash Management Contract) in existence is not exclusively, contrary to what the taxpayer argues, a "Treasury Deficiency Management Contract", which follows from the very legal name by which it was christened.

Then, the contract in question is express in assuming, in its recitals, that the parties wish to maximize their synergy through participation in a centralized treasury management system, which will allow the promotion of coordination and optimal use of their treasury surpluses and cover their cash flow needs. And as expressed in article 2 of that agreement, it is confirmed that A... entrusts the centralizing entity with the management of its surpluses and cash needs. And, as such, the centralizing entity will be responsible, in particular, for the receipt of funds corresponding to A...'s cash surpluses and for the making available to A... of the funds necessary to cover its treasury needs.

And as can be verified, the contract itself also does not provide that the receipt of funds corresponding to A...'s cash surpluses, by the centralizing entity, is dependent on the existence of treasury needs of the centralizing entity, thus even the integral fulfillment of the contract could never allow to conclude that such operations were exclusively intended for covering treasury deficiency, as the taxpayer sought to justify.

In these terms, it is evidenced that the financial operations of transfer of the treasury surpluses of Group A... do not meet the requirements, provided for in article 7 of CIS, for these operations to be exempt from Stamp Duty. Since it is not proven that the credit transferred by Group A... to the beneficiary entities, D... and C..., was exclusively used to meet the treasury needs of these. And since the taxpayer did not meet the burden of proof as to the premises of the claimed exemption, since under paragraph 1 of article 74 of the General Tax Law (LGT), it would be incumbent on the taxpayer to prove that the transfers in question were intended to meet treasury deficiencies on which the law makes the exemption dependent, which it did not do.

Thus, given the demonstrated existence of financial operations subject to taxation under Stamp Duty, it falls to the taxpayer to prove the premises of such taxation, especially so as it was requested to do so and results from the rule provided for in subsections g) and h) of paragraph 1 of article 7 of CIS.

Now then, the demonstration of the premises to benefit from the exemption is obligatory and refers us to the issue of the burden of proof, being necessary to observe the provision in article 342 of the Civil Code (CC) where it is determined that "It falls to whoever invokes a right to prove the facts constitutive of the right alleged" further establishing article 74 of the General Tax Law (LGT), with the heading "Burden of Proof", in its paragraph 1, that "The burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers falls on whoever invokes them.", from which it results that the "tax administration will have the burden of proof of the premises of the facts constitutive of the rights that it intends to exercise in the procedure, while the taxpayers will have the burden of proving the facts that may serve as support for the realization of those rights." - as per Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa in General Tax Law commented and annotated, 3rd edition.

And, in fact, this has been the uniform understanding of the jurisprudence of the Supreme Administrative Court (STA) in similar matters, being able to consult, in this regard, the Decision of 24-04-1991, handed down in case 013143, the Decision of 14-01-2005, handed down in case 01480/03, as well as the Decision of 29/04/2004, handed down in case 01680/03, in whose summary can be read:

III - Having carried out an intra-community transaction that benefits from exemption, it was incumbent on the appellant to prove the existence of the tax facts that it alleged as grounds for its right, that is, the existence of the alleged intra-community transfer."

And also at the level of Central Courts can be found jurisprudence in the same sense, citing, by way of example, the Decisions of the Central Administrative Court of the South (TCA-Sul) of 24-01-2012, handed down in case 05079/11, where it can be read that the burden of proof of the facts constitutive of a right to exemption from tax or of another right intended to exercise before the Tax Authority, lay with the taxpayer of the tax and not the latter, and the case had to be judged against the party burdened with such burden when the reality of the facts, by another route, is also not obtained", as well as the Decision of the same Court of 02-07-2013, handed down in case 06629/13, where it was stated that "Given the provision in article 74, paragraph 1, of the G.T.L., it is incumbent on the taxpayer of tax to prove the premises of subjection to the regime of a given tax benefit, while an fact preventing the standard taxation."

Being an exemption, we are before a Tax Benefit in accordance with paragraph 2 of article 2 of the Tax Benefits Statute (EBF) "Tax benefits are exemptions, tax rate reductions, deductions from the tax base and tax collection, accelerated depreciation and reinstatement and other tax measures that comply with the characteristics announced in the preceding number."

And in accordance with article 7 of the same diploma "All persons, natural or legal, of public or private law, to whom tax benefits are granted, automatic or dependent on recognition, are subject to inspection by the Tax and Tax Authority and other competent entities, to control the verification of the premises of the respective tax benefits and compliance with the obligations imposed on beneficiaries of the right to benefits."

In these terms, the Tax Authority requested from the taxpayer proof that its applications of treasury surpluses were exclusively intended for covering treasury deficiencies of the recipient entity (centralizer) of these funds, limiting itself to respond by email message of 2017-01-30, "...confirms that its applications of treasury surpluses result from the necessity to fulfill the contractual obligations assumed by it and other participants in the cash pooling structure current within the scope of Group B..., which is exclusively intended to meet their respective treasury deficiencies" (Annex VIII).

Therefore, having invoked the exemption provided for in subsections g) and h) of paragraph 1 of article 7 of CIS and not having proven it, the extinction of the tax benefit operates, which has as a consequence the automatic restoration of standard taxation in accordance with paragraph 1 of article 14 of EBF.

In summary, it is concluded that the financings granted by A... to the beneficiary entities, D... and C..., fill the concept of credit.

For purposes of applying the rates provided for in item 17.1 and since the credit is used for an undefined or undeterminable term, the tax obligation is considered constituted on the last day of each month, being the rate to apply, that referred to in item 17.1.4 of TGIS, that is 0.04%, which, in accordance with the description entered in this item, applies "...on the monthly average obtained through the sum of the outstanding balances determined daily, during a month, divided by 30."

Not being the treasury surpluses of Group A..., provably used exclusively to meet the treasury needs of the beneficiary entities thereof, D... and C..., cannot be recognized the exemption provided for in subsections g) and h) of paragraph 1 of article 7 of CIS, by failure to comply with its requirements.

Making it concrete by beneficiary entity:

e.1) The treasury surpluses of Group A... transferred to D..., SGPS, SA (D...)

On 16 May 2014, the taxpayer signed with D..., SGPS, SA (NIPC...) a centralized treasury management contract called "Centralised Cash Management Agreement", in which it formalizes its accession to the cash pooling system used by the entities of Group B..., which has as "the Master Account Holder" E... SA (BE...), resident in Belgium.

The taxpayer began its participation in the cash pooling system on 24 June 2014, having transferred to said system the amount of €58,958,241.79 (includes the amount of €6,794,200.65 referring to treasury surpluses made available by G... and the amount of €13,926,976.63 made available by F...).

Thus, as a result of accession to the cash pooling system in effect within the scope of Group B..., the centralizing entity of the funds made available by the taxpayer was, until 7 July 2014, the company D..., SGPS, S.A (D...), its sole shareholder, the date on which it was subject to dissolution and liquidation, from which resulted the distribution of its assets (including the interest held in the capital of A...) to C..., S.A. (C...), resident in Belgium (BE...).

During the period in which D... was the centralizing entity of the treasury surpluses of Group A... (A..., G... and F...), that is, between 2014-06-24 and 2014-07-07, it is verified that the funds transferred by A... exceed the funds obtained by it from the managing entity, being permanently in a position of credit granted to D... .

Thus, the funds transferred by A... to D..., under a centralized treasury management contract, constitute financings granted subsequently used by that entity, as it sees fit.

In conclusion, in accordance with subsection b) of paragraph 1 of article 2 of CIS are taxpayers of the Stamp Duty the credit-granting entities.

Already in accordance with paragraph 1 of article 23 of CIS the assessment and payment of Stamp Duty is the responsibility of the credit-granting entities.

Thus, combining subsection b) of paragraph 1 of article 2 with paragraph 1 of article 23, both of CIS, it is A... the taxpayer of the Stamp Duty, with responsibility for assessing the Stamp Duty due.

On the other hand, in accordance with subsection g) of article 5 of CIS, in credit operations the birth of the tax obligation occurs at the moment in which they are carried out or, if the credit is used in the form of a current account, bank overdraft or any other means in which the term is not determined nor determinable, on the last day of each month.

Finally, the duty to pay the Stamp Duty assessed as outstanding is of A... by combination of article 41 of CIS with paragraph 1 of article 23 of the same code.

In these terms, Stamp Duty assessed as outstanding was determined in the amount of €11,005.93, with an annex table showing the calculations of the assessment of Stamp Duty monthly outstanding, which is summarized in the following table:

[Table omitted for brevity]

e.2) The treasury surpluses of Group A... transferred to C... (C...)

The participation of the Taxpayer in the cash pooling system in effect within the scope of Group B..., had as the centralizing entity of the funds made available by it, until 7 July 2014, the company D..., SGPS, S.A (D...), its sole shareholder, the date on which it was subject to dissolution and liquidation, from which resulted the distribution of its assets (including the interest held in the capital of A...) to C..., S.A. (C...), resident in Belgium (BE...).

Thus, from 2014-07-08, C... became the centralizing entity of the treasury surpluses of Group A... (A..., G... and F...), that is, between 2014-07-08 and 2014-07-30 and from 2017-08-07 to 2014-12-31, it is verified that the funds transferred by A... exceed the funds obtained by it from the managing entity, being in a position of credit granted to C... .

Thus, the funds transferred by A... to C..., under a centralized treasury management contract, constitute financings granted subsequently used by that entity, as it sees fit.

Not being the treasury surpluses of Group A..., provably used exclusively to meet the treasury needs of the beneficiary entity thereof, C..., cannot be recognized the exemption provided for in subsections g) and h) of paragraph 1 of article 7 of CIS, by failure to comply with its requirements.

On the other hand, given the direction of the financial flows realized between A... and C... it is found that the creditor is A..., being it the credit-granting entity, whose registered office is located in national territory, therefore, pursuant to paragraph 2 of article 7 of CIS, the exemptions in subsections g) and h) of paragraph 1 of article 7 of CIS do not apply. Since these exemptions do not apply when any of the participants does not have registered office or effective management in national territory, which is the case of C..., which is an entity resident for tax purposes in Belgium. And, even in the case of one of the participants not having registered office in national territory, the exemptions in subsections g) and h) only prevail if the creditor has registered office or effective management in another Member State of the European Union or in a State with which a convention to avoid double taxation on income and capital, agreed with Portugal, applies, which is not the case as previously indicated, A... and C... belong to the same economic group, with the creditor having registered office in national territory. Now if we regard paragraph 2 of article 7 of CIS, we find that the financing granted by A... to C... could not benefit from the Stamp Duty exemption invoked by it.

In conclusion, in accordance with subsection b) of paragraph 1 of article 2 of CIS are taxpayers of the tax the credit-granting entities.

Already in accordance with paragraph 1 of article 23 of CIS the assessment and payment of the tax is the responsibility of the credit-granting entities.

Thus, combining subsection b) of paragraph 1 of article 2 with paragraph 1 of article 23, both of CIS, it is A... the taxpayer of the tax, with responsibility for assessing the tax due. On the other hand, in accordance with subsection g) of article 5 of CIS, in credit operations the birth of the tax obligation occurs at the moment in which they are carried out or, if the credit is used in the form of a current account, bank overdraft or any other means in which the term is not determined nor determinable, on the last day of each month.

Finally, the duty to pay the tax assessed as outstanding is of A... by combination of article 41 of CIS with paragraph 1 of article 23 of the same code.

The Stamp Duty assessed as outstanding amounts to €127,515.81, with an annex table showing the calculations of the assessment of the Stamp Duty monthly outstanding (Annex I), which is summarized in the following table:

[Table omitted for brevity]

f) Conclusion

In view of the above, it is concluded that the financings granted by A... to D..., SGPS, S.A (D...) and to C..., S.A. (C...) - the centralizing entities of the treasury surpluses of Group A... - fill the concept of credit, and since the funds transferred by A... exceed the funds obtained by it from these entities, this difference takes the form of credit granted from the first to the second entities.

For purposes of applying the rates provided for in item 17.1 and since the credit is used for an undefined or undeterminable term, the tax obligation is considered constituted on the last day of each month, being the rate to apply, that referred to in item 17.1.4 of TGIS, that is 0.04%, which, in accordance with the description entered in this item, applies "...on the monthly average obtained through the sum of the outstanding balances determined daily, during a month, divided by 30."

In view of the foregoing, and having regard to the provision in subsections g) and h) of paragraph 1 and paragraph 2, both of article 7 of CIS, the exemptions invoked by the taxpayer regarding the credit transfers made by it during 2014 in favor of D... and C... are not applicable by virtue of failure to comply with its requirements. Given that the funds transferred and the respective contract do not aim exclusively at covering treasury deficiencies, and as duly evidenced, the contract governing these operations aims at centralized treasury management, so the making available of treasury surpluses is not conditioned on the existence of treasury deficiency of the beneficiary entity thereof.

Thus, in accordance with subsection b) of paragraph 1 of article 2 of CIS are taxpayers of the Stamp Duty the credit-granting entities. Already in accordance with paragraph 1 of article 23 of CIS the assessment and payment of Stamp Duty is the responsibility of the credit-granting entities.

Thus, combining subsection b) of paragraph 1 of article 2 with paragraph 1 of article 23, both of CIS, it is A... the Taxpayer of the Stamp Duty, with responsibility for assessing the Stamp Duty due. On the other hand, in accordance with subsection g) of article 5 of CIS, in credit operations the birth of the tax obligation occurs at the moment in which they are carried out or, if the credit is used in the form of a current account, bank overdraft or any other means in which the term is not determined nor determinable, on the last day of each month.

Finally, the duty to pay the Stamp Duty assessed as outstanding is of A... by combination of article 41 of CIS with paragraph 1 of article 23 of the same code.

The Stamp Duty assessed as outstanding amounts to €138,521.74 (€127,515.81 + €11,005.93), with an annex summary table of Stamp Duty outstanding, by tax period:

[Table omitted for brevity]

Thus, and pursuant to subsection b) of paragraph 1 of article 2 and articles 23 and 41 of CIS, the assessment of this Stamp Duty and its delivery to the State treasury is the responsibility of the credit-granting entity, A... in the case in question, so A... should have paid the Stamp Duty by the 20th day of the month following the month in which the tax obligation was constituted (paragraph 1 of article 44 of CIS).

And in light of paragraph 1 of article 40 of CIS, the non-delivery of Stamp Duty or the delay in assessment is always imputable to the taxpayer, adding, to the amount of Stamp Duty due, compensatory interest.

In view of the foregoing, Stamp Duty assessed as outstanding was determined, in accordance with the above table, in the amount of €138,521.74 (€127,515.81 + €11,005.93), resulting from the application of item 17.1.4 of TGIS, to the credit granted by A... to D... and to C... during the year 2014, with an undefined or undeterminable term.

It should be noted that Stamp Duty assessed is considered a charge of the credit user in accordance with subsection f) of paragraph 3, combined with paragraph 1 of article 3 of CIS, with the consequent implications at the level of Corporate Income Tax since in accordance with subsection f) of paragraph 1 of article 23-A of the Corporate Income Tax Code, these are non-deductible expenses for tax purposes.

• Subsequently, the Applicant was notified of the tax assessment acts for Stamp Duty No. 2018..., in the amount of €138,521.74, and respective tax assessment acts of compensatory interest Nos. 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., which total €17,369.21, tax assessments and interest which in total make €155,890.95 (document No. 4 attached with the request for arbitral decision, whose contents are given as reproduced);

• The Applicant made the payment of the amount of €155,890.95, corresponding to the Stamp Duty and compensatory interest assessed (document No. 5 attached with the request for arbitral decision, whose contents are given as reproduced);

• The "Centralised Cash Management Agreement" referred to in the Tax Inspection Report has the contents that appear in its Annex VI, whose contents are given as reproduced, in which it refers, among other things, to the following:

ARTICLE 1 - PURPOSE

The Parties agree to make permanent and systematic use of multi-currency cash pooling, which would be coordinated by the Centralizing Company; the Centralized Company mandate the latter, which accepts, to ensure, coordination and centralization of all their cash needs and excess liquidity in the short term to allow the Centralized Company to benefit:

• from an optimisation of its cash management;

• from a reduction in the weighted average cost of its financing and, accordingly, of its financial and banking charges;

• from a fair return on its cash surpluses.

ARTICLE 2 — MISSION OF THE CENTRALISING COMPANY

The Centralized Company entrusts to the Centralizing Company the management of their cash surpluses and needs.

As such, the Centralizing Company will be responsible in particular for:

• receiving in the form of advances, from those of the Centralized Company having surplus cash, the funds that correspond to such surplus;

• making available in the form of advances to those Centralized Company with cash needs such funds as will enable them to cover those needs;

• negotiating all short-term bank loans and, in general, the terms and conditions of any and all bank financing;

• negotiating and implementing any system of automated management of cash and information flows between the Centralizing Company, the Centralized Company and the banking institutions;

• making any investment – through whatever means – that complies with the investment policy of the B… Group;

• any other task directly or indirectly related to the short-term management of the liquidity of the Centralized Company.

• The Applicant began its participation in the cash pooling system on 24-06-2014, with D... being the centralizing entity, having transferred to said system the amount of €58,958,241.79, which includes the amount of €6,794,200.65 referring to treasury surpluses made available by G... and the amount of €13,926,976.63 made available by F...;

• On 07-07-2014, D... was subject to dissolution and liquidation, from which resulted the distribution of its respective assets (which included the interest held in the Applicant's capital) to C..., S.A. ("C..."), resident in Belgium;

• From 08-07-2014, C... became the centralizing entity of the treasury surpluses of GROUP A... (A..., G... and F...), through an account based in H..., in Belgium;

• The transfer of funds arising from the cash pooling aforementioned is supported by a contract concluded between the APPLICANT and C..., operating on a daily basis, in which the banking institutions involved act as mere service providers;

• The balance sheet of C... relating to 31-12-2014 has the contents that appear in document No. 8 attached with the request for arbitral decision, whose contents are given as reproduced;

• C... concluded on 29-07-2013, with E..., the credit opening contract that appears in document No. 10 attached with the request for arbitral decision, whose contents are given as reproduced, by which it made available a credit to it in the amount of €700,000,000.00, with semi-annual interest payment;

• From document No. 11 attached with the request for arbitral decision, whose contents are given as reproduced, account statements of C... with H... appear;

• D... presented a net result before negative taxes, corresponding to €95,489.02, document No. 12 attached with the request for arbitral decision, whose contents are given as reproduced;

• The extract of account 6221 of D... relating to the period of 31-01-2014 to 30-06-2014 has the contents that appear in document No. 13 attached with the request for arbitral decision, whose contents are given as reproduced;

• On 11-09-2018, the Applicant submitted the request for constitution of the arbitral court that gave rise to the present proceedings.

2.2. Unproven Facts and Substantiation of the Factual Matters Decision

The established facts are based on the administrative process and on the documents attached by the Applicant whose correspondence to reality is not contested by the Tax and Customs Authority.

It was not proven that the funds made available by the Applicant were intended exclusively for covering treasury deficiencies.

The substantiation on this matter will be included in the appreciation of legal matters.

3. Legal Matters

The arbitral tax procedure, as an alternative means to judicial challenge proceedings (paragraph 2 of article 124 of Law No. 3-B/2010, of 28 April), is, like the latter, a procedural means of mere legality, aimed at eliminating the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [articles 2 of RJAT and 99 and 124 of CPPT, applicable by force of the provision in article 29, paragraph 1, subsection a), of that], so the acts must be appreciated as they were practiced, the court not being able, in the face of the verification of the invocation of an illegal ground as support for the administrative decision, to assess whether its action could be based on other grounds.

Thus, as the Applicant argues, ex post facto substantiation is not relevant, in particular the one relating to "working capital" that the Tax and Customs Authority refers to in its Reply.

The Applicant began on 24-06-2014 its participation in the centralized treasury management system (cash pooling) of Group B..., which it is part of, under contracts it concluded with companies of that group.

The system was implemented through accounts opened with banks H... and I..., which are mere service providers.

The centralizing entity of the funds made available by the taxpayer was, until 7 July 2014, the company D..., SGPS, S.A (D...), its shareholder, an entity resident in Portugal.

On that date D... was dissolved and liquidated, with the interest held in the capital of A... being transferred to C..., S.A. (C...), resident in Belgium.

Within the scope of that system, the Applicant transferred funds that were not subject to taxation in Stamp Duty.

In the inspection procedure, the Tax and Customs Authority understood, regarding the operations with D..., that the operations in question are subject to taxation under Stamp Duty, because, in sum:

– "we are in the presence of a granting and use of credit, we have A..., the taxpayer in accordance with subsection b) of paragraph 1 of article 2 of CIS with registered office in Portugal, as the lending entity (grantor) and the centralizing entity as the borrowing entity (user), so the realization of the credit (making funds available) occurs in national territory, thus being an operation subject to Stamp Duty, in accordance with the principle of territoriality established in the aforementioned paragraph 1 of article 4 of CIS, being taxed at the rates provided for in item 17.1, with responsibility for the assessment and delivery to the State treasury of the Stamp Duty falling on the taxpayer in accordance with articles 23 and 41, both of CIS";

– the exemption provided for in subsection g) of paragraph 1 of article 2 of CIS is inapplicable, as it was not demonstrated that the operations be "exclusively intended for the coverage of treasury deficiency".

Regarding C..., resident in Belgium, the Tax and Customs Authority understands that the operations are subject to Stamp Duty because, in sum:

"the creditor is A..., being it the credit-granting entity, whose registered office is located in national territory, therefore, pursuant to paragraph 2 of article 7 of CIS, the exemptions in subsections g) and h) of paragraph 1 of article 7 of CIS do not apply. Since these exemptions do not apply when any of the participants does not have registered office or effective management in national territory, which is the case of C..., which is an entity resident for tax purposes in Belgium. And, even in the case of one of the participants not having registered office in national territory, the exemptions in subsections g) and h) only prevail if the creditor has registered office or effective management in another Member State of the European Union or in a State with which a convention to avoid double taxation on income and capital, agreed with Portugal, applies, which is not the case as previously indicated, A... and C... belong to the same economic group, with the creditor having registered office in national territory".

The Tax and Customs Authority further understood that the Applicant did not prove that the funds made available were intended exclusively for covering treasury deficiency.

The Applicant attributes to the contested assessment vices due to:

– violation of the rules on territorial incidence of Stamp Duty (the use of credit occurs outside Portuguese territory), in the case of credits granted to C...;

– violation of the exemption provided for in article 7, paragraph 1, subsection g), of CIS;

– non-conformity of article 7, paragraph 2, of CIS with European Law, regarding credits granted to C...;

– violation of the principle of legality, in its aspect of typicality;

– violation of the principle of equality, as to credits granted to C... .

3.1. Question regarding application of CIS as to credits granted to C...

The Applicant argues, in sum, the following:

– the use of credits granted to C... occurred entirely outside Portuguese territory, outside the scope of territorial incidence of CIS;

– in the case of financial operations of credit transfer, "the relevant tax fact is the actual use of credit by the beneficiary, considered, for that very reason, under CIS, the holder of the corresponding economic interest (see article 3, paragraph 3, subsection f), of CIS)" and not the contract underlying them;

– pursuant to article 4, paragraph 1, of CIS, "stamp duty applies to all facts referred to in article 1 occurring in national territory", which is in accordance with article 13, paragraph 1, of LGT;

– "as to C..., the credits transferred by the APPLICANT had as recipient a non-resident entity without a permanent establishment in Portugal which did not use them in Portuguese territory";

– the holder of the economic interest in credit grants that is the "credit user";

– even in cases where a current account is at issue, the actual use of credit in Portuguese territory will continue to be determining for the constitution of the tax fact on which subjection to Stamp Duty depends, for the purposes provided for in item 17.1 of TGIS;

– if we were to interpret that in situations in which the beneficiary is non-resident the tax fact ceases to be the use of credit to become the granting of credit, such normative interpretation would suffer from discrimination and restriction on the free movement of capital, prohibited by Community Law (see article 63 TFUE and article 40 of the EEA Agreement), applicable not only in relation to other Member States (which is the case in our instance since C... is resident in Belgium), but also in relation to third countries.

As the Tax and Customs Authority pertinently states, the Supreme Administrative Court handed down, on 28-11-2018, a decision in case No. 0436/16, cited by the Applicant [2], in which it addressed the issues of:

• Knowing whether the mere making available of funds under a treasury centralization contract (cash pooling contract in the "cash concentration" modality), under which a company channels its treasury surpluses to a centralizing entity belonging to the same group of companies, which may invest the global treasury surpluses with third-party entities or make them available to other companies in the same group in a deficit situation, and must return the treasury surpluses of that company whenever it requests them, constitutes a credit operation subject to Stamp Duty in terms of item 17.1.4 of TGIS;

• Knowing whether credit under the form of a current account, granted by an entity with registered office in Portuguese territory to an entity with registered office in another State, in which the use of credit will take place, is subject to Stamp Duty in Portugal under the provision of article 4, paragraph 1, of CIS.

These are precisely the questions that arise in the present proceedings, as is recognized by the Applicant (in article 73 of the request for arbitral decision).

The Supreme Administrative Court decided the following:

Item 17.1.4 of the General Table of Stamp Duty provides that credit used under the form of a current account, bank overdraft or any other form in which the term of use is not determined or determinable, on the monthly average obtained through the sum of outstanding balances determined daily, during the month, divided by 30.

In summary, the factual situation is as follows: A………., Ltd. (A……..) concluded a contract with A'……… (A'………), by which it undertook to transfer all its treasury surpluses to this A'……….., entity responsible for the centralized treasury management of the A…….. group. On the other hand, it began to be able to benefit from the funds of A'……….., in case it needed them.

For the transfers of funds carried out A………… received interest in the amount of € 3,626,988.59.

A………… has registered office in Portugal and A'………… has registered office in Sweden.

There is no doubt, because it is proven documentally, that the appellant and said A'………… are part of an integrated treasury management agreement in which in the face of the existence of treasury surpluses, in the case of the appellant, such surpluses were remitted to A'………… which used them in aiding other companies that needed capital and in return paid interest to the appellant for the making available of these surpluses with which it contributed to said integrated management agreement.

There occurred, therefore, one or more operations of transfer of balances between the account(s) of the appellant and the account(s) of the centralizing entity, A'…………, which cannot fail to constitute financings granted through the realization of treasury operations, thus verifying the credit granting to which the aforementioned item 17.1.4 of TGIS refers.

With this item of Stamp Duty it is intended to tax the transfers of balances between the appellant, as a national company, and the centralizing entity, based in Sweden, and such transfers of balances should be qualified as financings granted also for purposes of the provision of article 4, paragraph 1 of CIS. Therefore, in the concrete case, it would be incumbent on the appellant the assessment of stamp duty, in the capacity of credit grantor, which then should debit to A'………… not resident.

And such transfers of balances, both are taxed when they occur between national companies, between companies of member states or even between companies of member states and third countries, with the rules contained in articles 1, paragraph 1, 2, b), 3, paragraph 1, f), 4, paragraph 1, 23, paragraph 1, 41 and 44, all of CIS, always applying.

In this measure, it is not envisaged that the rules of article 63 of TFUE and 40 of the EEA Agreement, which establish the free movement of capital, are violated, since these rules relative to Stamp Duty are applied without discrimination to all legal economic operations, without discrimination based on nationality or territory, when two companies operate under the same conditions and are subject to the same agreements as the appellant and the A'………., in coincidental sense, where it was decided that Union law was violated by there being different treatment based on territory, can be seen in the decision of the CJEU handed down in case No. C-439/97.

Effectively the operation