Process: 462/2017-T

Date: June 22, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 462/2017-T addressed the stamp tax treatment of cash-pooling arrangements in Portugal. The applicant, A... Lda., challenged stamp duty assessments totaling €67,570.80 plus interest for 2012, related to centralized treasury management contracts within the C... Group. The company participated in a cash-pooling arrangement where daily bank balances of group companies were transferred to a single centralizing account held by D... S.A. (now E...). Additionally, an overdraft facility of €10 million was available at Euribor plus 0.65% spread. The taxpayer argued for exemption under Article 7(1)(h) of the Stamp Duty Code, which exempts financial operations between shareholders holding at least 10% equity for one year, when operations don't exceed one year and exclusively cover treasury shortfalls. The Tax Authority rejected the gracious complaint, leading to arbitration. Key issues included whether the cash-pooling contract's indefinite duration disqualified the exemption, despite the underlying loan agreement having one-year renewable terms. The applicant demonstrated that 2012 financial flows (€27.19M received, €39.70M repaid) were offset within the year. The arbitral tribunal, constituted on November 9, 2017, comprised three arbitrators and followed standard CAAD procedures. Both parties submitted written arguments after the hearing was dispensed with. The decision deadline was extended to July 9, 2018. This case illustrates critical aspects of stamp tax exemptions for intra-group financing and the evidentiary requirements for demonstrating short-term treasury management operations under Portuguese tax law.

Full Decision

ARBITRATION DECISION

The arbitrators Fernanda Maçãs (president arbitrator), Raquel Franco and Prof. Doctor Diogo Feio (member arbitrators), appointed by the Deontological Council of CAAD to constitute the Collective Arbitral Tribunal, established on 09-11-2017, hereby agree as follows:

REPORT

  1. A..., Lda., with the NIPC..., with registered office at Rua ..., ..., no. ..., ...-... Carnaxide (hereinafter designated "Applicant"), came pursuant to articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), to submit a request for arbitral pronouncement against which the Tax and Customs Authority is respondent.

The Applicant requests the annulment of the decision rejecting the Gracious Complaint no. ...2016..., from the Administrative Justice Division of the Finance Directorate of Lisbon, filed against stamp duty assessments for the year 2012, in the total amount of € 67,570.80, plus compensatory interest in the amount of € 10,023.41, the annulment of which it consequently requests.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 01-09-2017.

Pursuant to the provisions of paragraph a) of article 6, paragraph 2 and paragraph b) of article 11, paragraph 1 of the LRAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the office within the applicable deadline.

On 17-10-2017 the parties were duly notified of this appointment, and did not manifest any intention to reject the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, paragraphs a) and b) of the LRAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of paragraph c) of article 11, paragraph 1 of the LRAT, the arbitral tribunal was constituted on 09-11-2017.

The Tax and Customs Authority submitted its reply in which it argued for the rejection of the request.

By order of 01-01-2018, the holding of the meeting referred to in article 18 of the LRAT was dispensed with since no exception was raised nor was there evidence to be produced.

In this order, the parties were notified to submit, if they so wished, written arguments with successive character within a period of fifteen days, and the date 9-05-2018 was set as the final deadline for pronouncement of the arbitral decision, during which time the Applicant should proceed to payment of the subsequent arbitral fee.

Both parties submitted written arguments, reiterating their respective legal positions.

Pursuant to paragraph 2 of article 21 of the LRAT, an order was issued on 05-05-2018 extending by 2 months the deadline referred to in paragraph 1 of that article and indicating as the final date for pronouncement of the decision the day 9-07-2018.

The arbitral tribunal was regularly constituted and is competent.

The parties are duly represented, have legal standing and capacity and are legitimate (articles 4 and 10, paragraph 2 of the CPPT and article 1 of Regulation no. 112-A/2011, of 22 March).

The case is free of defects of form and no exceptions were raised.

  1. To support its request for arbitral pronouncement, the Applicant alleges, in summary, the following:

  • It is a commercial company with limited liability whose corporate purpose consists of the business of trading in hospital equipment and electromedicine products, and whose original name was "B..., Lda.";

  • On 1-06-2006, it concluded a contract for centralized treasury management (cash pooling) with various companies of the C... Group, of which it is a part;

  • Under this contract, the creditor and debtor bank balances of each of the contracting companies were transferred daily to a single bank account called "cuenta centralizadora", held by D..., S.A. (now called E...), which functions as the centralizing entity;

  • The contract provides that the various bank balances representing the treasury of each adhering company are brought to zero through the transfer of excess amounts to the centralizing account, while deficit balances are covered by a reverse transfer movement from the centralized bank account in favor of the bank account of the company with insufficient funds;

  • Thus, although these transactions appear as zero in the Applicant's bank statement, this is not reflected in the accounting, because by the time the balances are transferred, new entries have already been made in the Applicant's cash pooling account;

  • From the aggregation of balances, whose management is the responsibility of the Banks that executed the contract in question, a single overall balance emerges that corresponds to the consolidated treasury of the F... group, and on which interest is debited or credited depending on whether the balance is in surplus or deficit;

  • On 1 June 2006, an overdraft loan agreement was concluded between the Applicant and D..., S.A. (now called E..., S.A.U.);

  • In this contract it was agreed that D..., S.A. (now called E..., S.A.U.) made available to the Applicant a maximum amount of € 10,000,000.00 (ten million euros), and that on the borrowed amounts, interest was due at the three-month Euribor rate, plus a spread of 0.65%;

  • Paragraph h) of article 7, paragraph 1 of the Stamp Duty Code, at the time of the facts, provided that exempt from stamp duty were "transactions, including respective interest, referred to in the preceding paragraph, when effected by holders of share capital in entities in which they hold directly a participation in capital of not less than 10% and provided that this has remained in their ownership for one consecutive year or since the establishment of the participated entity, provided that in the latter case, the participation is maintained during that period";

  • Paragraph g) of article 7, paragraph 1 of the Stamp Duty Code stated, at the time of the facts, that exempt from this duty were "financial operations, including respective interest, for a period not exceeding one year, provided that exclusively intended to cover treasury shortfalls (...)";

  • For this exemption to be applicable, the following conditions had to be cumulatively satisfied: (i) Credit granted for a period not exceeding one year; (ii) Credit intended exclusively to cover treasury shortfalls and (iii) credit granted by holders of share capital to entities in which they hold directly a participation of not less than 10% and provided that this has remained in their ownership for one consecutive year;

  • Regarding the (i) requirement, the Tax and Customs Authority does not dispute that the Applicant and E..., S.A.U. (then called D..., S.A.) belong to the same business group and can benefit from the exemption in question;

  • As to the (ii) requirement, the fact that the cash pooling contract concluded between the companies of the B... group and the Banks, as managing entities, has an indefinite term does not mean that the repayment period of the borrowed amounts exceeds one year, and moreover, the Tax and Customs Authority did not provide reasons why it considered the financing contract's term to exceed one year;

  • The Loan Agreement had, at the time of the facts, that is in 2012, a duration of one year, with the possibility of renewal for equal periods if not denounced by either party;

  • During the year 2012, the Applicant received financial flows in the total amount of € 27,190,887.07 and repaid € 39,704,059.08, with the final creditor balance of the account (€ 13,850,750.60) resulting from the difference between the total repaid and the accumulated balance of the previous year (€ 26,363,922.61), so the total amount of financial inflows during the year in question was offset by the respective financial outflows during that same year, meeting requirement (i);

  • The treasury operations covered by the exemption of article 7 of the Stamp Duty Code are only passive treasury shortfall operations, that is, those intended to cover treasury shortfalls of the entity that presents a deficit treasury;

  • The Applicant was always in a debtor position in 2012 with respect to the Spanish entity, which the Tax and Customs Authority ignored, subjecting to taxation the entirety of the financial flows granted to the Applicant, lacking these corrections of any foundation;

  • Being faced with a "zero balancing" cash pooling contract on the basis of which the Applicant's deficit bank balance is brought to zero through coverage by a transfer from the centralized bank account in favor of the Applicant's bank account, the entirety of the amounts borrowed by the Applicant within the scope of the treasury management contract concluded are intended to cover the Applicant's treasury shortfalls and as such are exempt from duty under paragraph h) of article 7, paragraph 1 of the Stamp Duty Code;

  • On 31 December 2012, the Applicant's financial situation was so deficit that in the absence of funds received by virtue of the cash pooling contract (€ 13,850,750.60) this entity would have presented a negative treasury position of € 12,733,341.47 (€ 13,850,750.60 - € 1,117,409.13), making it impossible for it to meet its financial commitments;

  • Additionally, according to the calculation method determined by the Tax and Customs Authority as being appropriate for calculating the amount of duty that, exceeding the coverage of the Applicant's treasury shortfalls, should be subject to taxation, the Applicant arrives at the amount of € 1,511.71 in stamp duty;

  • To reach these values, average cash pooling balances as determined by the Tax and Customs Authority within the scope of the tax inspection procedure were used, so it could never be € 67,570.80.

  • Thus, both the Tax Inspection Report Project and the Tax Inspection Report are entirely silent as to the reasons that led the Tax and Customs Authority to consider, on the one hand, that the financial transactions in question have a term exceeding one year and, on the other, that they are not intended to cover the treasury shortfalls, and therefore cannot benefit from the described exemption;

  • Furthermore, the administrative acts are silent as to the formula used by the Tax and Customs Authority to calculate the amount of credit subject to Stamp Duty, that is, to calculate the amount of credit that, exceeding the need to cover treasury shortfalls of the Applicant, should be subject to Stamp Duty;

  • Given the foregoing, the Applicant concludes that the rejection of gracious complaint no. ...2016... and the stamp duty assessment in the total amount of € 67,570.80 and the independent assessments of compensatory interest in the amount of € 10,023.41, for the year 2012, are illegal, and therefore such acts should be annulled. In addition to the amount of duty wrongfully assessed, the Applicant considers that it should be compensated through the payment of indemnity interest, until full and complete payment.

  1. The Respondent submitted a reply arguing for rejection of the request filed by the Applicant, alleging briefly that:

  • Regarding the duty of justification of the Tax and Customs Authority, article 77, paragraph 1 of the General Tax Law states that "The administrative decision is always justified by means of a brief exposition of the facts and legal grounds that motivated it (...)";

  • Pursuant to paragraph 1 of article 74 of the General Tax Law "The burden of proving the facts constituting the rights of the tax authority or taxpayers falls on whoever invokes them";

  • Therefore, it was incumbent on the Tax and Customs Authority to prove the existence of a transaction involving use of credit subject to Stamp Duty, and in turn it was incumbent on the Applicant to prove the requirements on which the exemption from such taxation depends, based on paragraph h) of article 7, paragraph 1 of the Stamp Duty Code;

  • Both in the Tax Inspection Report Project and in the Tax Inspection Report, the factual and legal grounds on which the disputed assessment was based are contained, namely the classification and incidence of the transaction in question as regards Stamp Duty.

  • We are faced with a credit transaction in which the borrowing entity is the Applicant, with registered office in Portugal, and the lending entity is E..., S.A.U. with registered office in Barcelona, so the credit transaction (making funds available) occurs within national territory, thus constituting an operation subject to Stamp Duty in accordance with the principle of territoriality established in paragraph 1 of article 4 of the Stamp Duty Code, and was therefore taxed at the rates provided in item 17.1 of the General Table of Stamp Duty;

  • For the purpose of applying the rates provided in item 17.1, and since the credit is used in the form of a current account, the tax obligation is constituted on the last day of each month, with the rate to be applied being that referred to in item 17.1.4 of the General Table of Stamp Duty, that is, 0.04% which, in accordance with the description entered in this item, applies "to the monthly average obtained by summing the amounts owed daily apportioned during a month, divided by 30";

  • With regard to the interest paid by A..., Lda. to E..., S.A.U., these are not subject to Stamp Duty, since they do not fall within item 17.2 of the General Table of Stamp Duty "Transactions effected by or with credit institutions, financial companies or other entities legally assimilated to them and any other financial institutions";

  • A..., Lda. and E..., S.A.U. belong to the same business group, and the transactions in question can benefit from the exemption provided for in paragraph h) of article 7, paragraph 1 of the Stamp Duty Code, provided that the following conditions are cumulatively satisfied: (i) these are financial transactions with a term not exceeding one year; (ii) they are intended exclusively to cover treasury shortfalls; (iii) they are effected by holders of share capital to entities in which they hold directly a participation of not less than 10% and provided that this has remained in their ownership for a minimum period of one consecutive year or since the establishment of the participated company, provided that in the latter case, the participation is maintained during that period;

  • In the present case, the first and second prerequisites do not exist, and since the conditions mentioned above are not cumulatively satisfied, the transactions in question cannot benefit from the exemption provided for in paragraph h) of article 7, paragraph 1 of the Stamp Duty Code;

  • In accordance with the provisions of paragraphs c) and d) of article 2, paragraph 1, when the creditor is a non-resident who does not engage in service provision activity in Portuguese territory and when the credit operations have not been intermediated by credit institutions, financial companies or other entities legally assimilated to them, the taxpayer is the borrowing entity, so it falls to A..., Lda. to assess the duty and deliver it to the State treasury in accordance with paragraph d) of article 2, paragraph 1, combined with articles 23 and 41 of the Stamp Duty Code.

  • The duty should have been paid by the 20th day of the month following that in which the tax obligation was constituted, pursuant to the provisions of paragraph 1 of article 44 of the Stamp Duty Code, so since A..., Lda. did not proceed to deliver the Stamp Duty owed, the same was calculated by applying the rate of 0.04% to the average amount owed determined in each month for the fiscal year 2012, in accordance with item 17.1.4 of the General Table of Stamp Duty;

  • It is therefore unfounded to invoke the alleged lack of justification of the Tax Inspection Report Project and of the Tax Inspection Report for the reason that they do not sufficiently demonstrate the reasons why the Tax and Customs Authority considered that two of the prerequisites for the right to the Stamp Duty exemption were not met, since the burden of demonstrating that the prerequisites for the right to exemption were met, as results from paragraph 2 of article 14 and article 74 of the General Tax Law, was on the Applicant.

  • Article 1, paragraph 1 of the Stamp Duty Code provides that "Stamp Duty applies to all acts, contracts, documents, titles, books, papers and other facts provided for in the General Table, including gratuitous transfers of property."

  • Thus, by reference from article 1 of the Stamp Duty Code to the General Table of the same law, all facts provided therein and that have occurred within national territory are subject to Stamp Duty;

  • Item 17 of the General Table of Stamp Duty under the heading "financial operations" provided that included within the scope of Stamp Duty were the granting of credit, regardless of the nature of the creditor and the borrower, alongside a set of financial operations resulting in interest and commissions, which are only subject to Stamp Duty if effected by credit institutions, financial companies, other entities legally assimilated to them and any other financial institutions;

  • It was therefore incumbent on the Applicant to bear the burden of proving the fulfillment of the exemption requirements through demonstration that, on the one hand, the financial transactions did not have a term exceeding one year and, on the other hand, that they were exclusively intended to cover treasury shortfalls;

  • The fact that a contract has an indefinite duration does not mean that it exceeds one year in any case, much less, and by a fortiori argument, is it equivalent to saying that the contract's term is less than one year;

  • Thus, even if the contract expressly provided that it would have a duration of one year or less, which is not the case here, it would not follow per se that compliance with that term had actually occurred in reality, so there would always be a need to prove it;

  • What is required is that the financial operation be of duration not exceeding one year, that is, that the borrowed amounts be repaid within a period not exceeding one year, regardless of what appears in the contract;

  • The same applies to the loan agreement, even though the contract provides that it has a duration of one year, it also provides that it automatically renews unless denounced by either party;

  • The loan agreement in the case file dates from 1 June 2006 and contains an amendment dated April 2009, and no documentary proof was submitted that it was denounced by either party, so it continues in force in 2012, far exceeding the one-year period;

  • For the prerequisite of the financial operation being of a term not exceeding one year to be met, it must be demonstrated for each financial operation that the funds were borrowed on a given date and were repaid within a period not exceeding one year;

  • For each financial inflow there must be a corresponding outflow, and this must be effected within a maximum period of one year for this exemption requirement to be met;

  • Analyzing the accumulated values – both debits and credits – as well as the monthly balances of account 26600000, it is not possible to draw any conclusion about the duration of the values that make up the opening balance of the account on 1-01-2012 and the values entered during the year 2012.

  • On the other hand, as to the requirement relating to coverage of treasury shortfalls, a cash pooling contract (a treasury management contract), can serve multiple purposes, ranging from managing the availability of resources so that the group derives material advantages by eliminating debtor and creditor balances, thereby obtaining a reduction in interest associated with debtor accounts, in addition to avoiding overdraft commissions and similar charges, with the consequent reduction in the level of loans and consequent level of indebtedness with banks, to equally covering treasury or working capital needs of group companies;

  • The mere invocation that balance transfers are effected within the scope of a centralized treasury management contract does not constitute sufficient proof to demonstrate that the credits granted are intended to cover all treasury shortfalls of the beneficiary;

  • The contractual terms of the Applicant's contract do not allow the conclusion that the borrowed amounts are entirely intended to cover treasury shortfalls, on the contrary the only intention expressly stated in the contract – "comporta la conveniencia para las mismas de una liquidación centralizada de sus cuentas con objeto de optimizar sus liquidaciones de interesses y reducir sus costes de administración e que com base no cuanto antecede, ambas las contratantes, ortogan el presente Contrato de Centralización diária de los apuntes entre España y Portugal" – is not one of suppressing treasury shortfalls, much less exclusive;

  • The contract itself provides nothing regarding the Applicant's treasury situation at the time of its implementation, which would always be relevant to ascertain whether the financial flows verified occurred or not within a context of shortfall;

  • It is therefore not correct to assert that, by itself, a Treasury Operations Management Contract, by virtue of its zero balancing mechanism, implies that financial flows occur only in situations of treasury shortfall;

  • There is a treasury shortfall when short-term available funds in a company (assets) are insufficient to meet commitments/obligations (liabilities), with reference to the same time horizon, that is, when the existing working capital is less than working capital needs;

  • It was necessary to demonstrate with respect to each of the funds received that these were intended to meet certain payments whose obligations fell due in that time period, which did not happen;

  • Since if one wishes to demonstrate insufficient funds, on the date to which the balance sheet refers, a comparison would have to be established between current funds – current assets – and current liabilities, and in the case in question it is verified that on that date the difference is largely positive;

  • Regarding the alleged error in the quantification of duty, the Tax and Customs Authority did not make a daily assessment of the A..., Lda.'s treasury situation and respective comparison with the monthly average balance of funds provided, because the necessary information was not made available by the Applicant either during the Tax Inspection Procedure or during the Gracious Complaint;

  • With regard to evidence, the facts presented by the Applicant (term not exceeding one year and treasury shortfalls) cannot be proved by any means other than documentary proof, as it results from article 364 of the Civil Code that "when the law requires, as a form of legal declaration, an authentic, authenticated or private document, this cannot be replaced by another means of proof or by another document that does not have superior probative force";

  • And in turn, from paragraph 1 of article 393 of the Civil Code that "if the legal declaration, by disposition of law or stipulation of the parties, must be reduced to writing or needs to be proved in writing, testimonial evidence is not admissible".

  • Therefore, the Respondent concludes that the request filed by the Applicant should be rejected.

ON THE MERITS

II.1. Factual Matter

Proven Facts

The following facts are considered proven:

  • The Applicant, formerly designated B..., Lda., has as its principal activity the trading in hospital equipment and the trading in electromedicine products;

  • The company has the legal nature of a private limited company, currently having share capital in the amount of € 47,000,000.00, belonging to E..., registered in Portugal with NIPC...;

  • On 1-06-2006, the Applicant concluded a contract for centralized treasury management (cash pooling) with various companies of the C... group, with indefinite duration (doc. no. 1, submitted by the Applicant);

  • Under this contract, the creditor and debtor bank balances of each of the contracting companies were transferred daily to a single bank account called "cuenta centralizadora", held by "D..., S.A. (now called E..., S.A.U.), which functions as the centralizing entity;

  • On 1-06-2006, an overdraft loan agreement was concluded between the Applicant and D..., S.A. (now called E..., S.A.U.) (doc. no. 3 submitted by the Applicant);

  • In this contract, it was agreed that D..., S.A. (now called E..., S.A.U.) made available to the Applicant a maximum amount of € 10,000,000.00 (ten million euros), and that on the borrowed amounts, interest was due at the three-month Euribor rate plus a spread of 0.65%;

  • That contract, concluded for a period of one year, provides for the express possibility of automatic renewal and contains as an annex an amendment dated April 2009 (doc. no. 3 submitted by the Applicant);

  • The financial transactions occurring between A..., Lda. and E... are recorded in account 26600000 - other transactions, an account which always presents a creditor balance (P.A.);

  • An inspection procedure was carried out on the Applicant, concerning the fiscal year 2012, authorized by Service Order OI2016...;

  • On 23-06-2016, in the course of the deadline for exercising the right of hearing, the now applicant voluntarily regularized the corrections made, having proceeded to the delivery of Stamp Duty payment slips;

  • With regard to the inspection procedure referred to, the Tax Inspection Report was drawn up;

  • Not conforming with the Tax Inspection Report, the now applicant submitted a Gracious Complaint on 4-11-2016;

  • On 2-08-2017, the Applicant submitted the request for arbitral pronouncement that gave rise to the present case.

2. Unproven Facts

No other facts with relevance to the arbitral decision were proven.

3. Justification of the Factual Matter

The factual matter deemed as proven is based on the position taken by the parties and on the documentary evidence presented and not contested, including the P.A.

III.2. Legal Matter

III.2.1. The central issue to be decided is whether the exemption from stamp duty provided for in paragraph h) of article 7, paragraph 1 of the Stamp Duty Code, whose wording at the time of the facts was as follows, is or is not applicable to the present case:

h) "Transactions, including respective interest, referred to in the preceding paragraph, when effected by holders of share capital to entities in which they hold directly a participation in capital of not less than 10% and provided that this has remained in their ownership for one consecutive year or since the establishment of the participated entity, provided that in the latter case, the participation is maintained during that period."

The preceding paragraph [paragraph g)] referred, in turn, to financial operations for a period not exceeding 1 year and intended exclusively to cover treasury shortfalls.

In the present case, the Parties do not disagree as to the fulfillment of the requirement relating to share capital participation [provided directly in paragraph h)], but rather as to the fulfillment of the requirements provided for in paragraph g), that is, as to the term and purpose of the financial operation in question.

The Applicant contends that all the elements analyzed point to a contract of duration not exceeding one year:

  • the cash pooling contract concluded between the borrower (the applicant) and the lender (the cash pooling centralizing entity) had a duration of one year, with the possibility of renewal for equal periods if not denounced by the parties;

  • the financial transactions between the Applicant and E... are recorded in account 26600000, from which it appears that during the year 2012, the Applicant received financial flows in the total amount of € 27,190,887.07 and repaid € 39,704,059.08, with the final creditor balance of the account, in the amount of € 13,850,750.60, resulting from the difference between the total repaid and the accumulated balance of the previous year € 26,363,922.61. This would confirm, in its understanding, that the total amount of financial inflows during the year in question was offset by the respective financial outflows during that same year, so repayment occurred before one year had elapsed from the loan, thus meeting the requirement as to the timing of the operation.

The TA contends, in turn, that:

  • the fact that the contract provides for an initial duration of one year does not mean that this was the reality of the facts, which needs to be demonstrated (what is required is that the amounts borrowed be repaid within a period not exceeding 1 year, regardless of what appears in the contract). Furthermore, the loan agreement to which the Applicant refers was concluded on 01.06.2006, provides for its automatic renewal, and contains an amendment dated April 2009, and no proof was submitted of its denunciation by either party before the end of the first year of the contract;

  • regarding this requirement of term, it must be determined for each financial operation both the date of utilization of the credit and the date of the respective repayment: in practical terms, for each financial inflow there must be a corresponding outflow, and this must be effected within a maximum period of one year;

  • as to the analysis of account 26600000, it is not possible to draw any conclusion as to the duration of the values that make up the opening balance of the account on 01.01.2012 and the values entered during the year 2012.

On this point, it appears that the TA is correct.

As results from the provision of article 74 of the GTL, "the burden of proving the facts constituting the rights of the tax authority or taxpayers falls on whoever invokes them".

In annotation to this provision, Diogo Leite Campos and others consider that "It is a corollary of the rule that the burden of proving the facts constituting the rights of the tax authority or taxpayers falls on whoever invokes them, that it will be on the party against whom those facts are invoked that the burden falls of proving the facts that are imperative, modifying and extinguishing of the rights invoked, which is in keeping with the rule of paragraph 2 of art. 342 of the CC." (cf. General Tax Law, Annotated and Commented, 4th ed., 2012, p. 657 and, among others, the Decisions of the STA of 27-06-2012, Case no. 0982/11, 2nd section and Decision of the Plenary Session of 17-02-2016, Case no. 0591/2015).

Applying the foregoing to the present case, it would thus be incumbent on the Taxpayer to prove the existence of the tax facts that it alleges as the basis of its right to Stamp Duty exemption.

Now, as to the contract, providing that the same automatic renewal without prejudice to denunciation by the parties and not proving that this occurred, it must be concluded that the contract remains in force. As to the facts underlying the contractual reality, we also cannot accept the Applicant's argument regarding the final balance of account 26600000 for the simple reason that the fact that it consists of the difference between the total repaid and the accumulated balance of the previous year does not mean that the amounts specifically borrowed in each financial operation were paid before one year had elapsed from their loan. The arguments presented by the Applicant are therefore insufficient to prove the requirement of duration of the financial operation, as was incumbent on it.

Being thus the case, since the requirements for the exemption in question are cumulative because they were so configured by the legislator, it becomes unnecessary to analyze the fulfillment of the requirement relating to the purpose of the financial operations (covering treasury shortfalls), and it can already be concluded that the requirements on which the application of the exemption provided for in paragraph h) of article 7, paragraph 1 of the Stamp Duty Code depends are not met.

It remains, therefore, for the Tribunal to pronounce itself briefly on the alleged lack of justification, since the Applicant alleges that both the project of the tax inspection report and the final report are entirely silent as to the reasons that led the TA to consider that the requirements on which the fulfillment of the exemption depended were not met.

Now, on the one hand, the TA refers, in both documents, to the view that the prerequisites on which the exemption depends are not met because the requirement of duration of less than 1 year and that of covering treasury shortfalls are not met. This would be sufficient – as it was – for the Applicant to understand the concrete reasons for the TA's decisions and to pronounce itself on them, attempting, through proof, to reverse the TA's position, either at the prior hearing stage or at the gracious complaint and challenge stage. And indeed, that is what it sought to do – the fact that it did not succeed in reversing the TA's position is related to the insufficiency of the proof of the requirements on which its right depended and not with the lack of justification of the TA's decisions.

Thus, we consider the alleged lack of justification to be unproven.

As to the request for indemnity interest filed by the Applicant, it finds no legal basis since the prerequisites on which its award depends are not met in the present case – namely, the illegality of the assessment.

DECISION

Thus, this Tribunal agrees to:

  • Reject the request for annulment of the decision rejecting the gracious complaint notified to the Applicant on 30.05.2017;

  • Reject the request for annulment of the stamp duty assessment slips in the total amount of € 67,750.80 and the independent assessments of compensatory interest in the amount of € 10,023.41;

  • Reject the request for award of indemnity interest.

VALUE OF THE CASE

In accordance with the provisions of articles 306, paragraph 2, and 297, paragraph 2 of the CPC, article 97-A, paragraph 1, paragraph a) of the CPPT and article 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is set at € 77,594.21.

VI. COSTS

In accordance with the provisions of articles 22, paragraph 4, and 12, paragraph 2 of the Legal Regime for Arbitration, article 2, paragraph 1 of article 3 and paragraphs 1 to 4 of article 4 of the Regulation on Costs in Tax Arbitration Proceedings, as well as Table I annexed to this law, the total value of costs is set at € 2,448.00 (two thousand four hundred and forty-eight euros).

Let it be notified.

Lisbon, 22 June 2018

The arbitrators,

Fernanda Maçãs (president)

Diogo Feio (Member)

Raquel Franco (Member)

Frequently Asked Questions

Automatically Created

What is the stamp tax (Imposto de Selo) treatment of cash-pooling arrangements in Portugal?
Cash-pooling arrangements in Portugal are subject to stamp tax under the general rules applicable to credit operations and interest, taxed at rates specified in the Stamp Duty Code. However, Article 7(1)(g) and (h) provide potential exemptions for financial operations not exceeding one year that exclusively cover treasury shortfalls, particularly when conducted between group companies where the shareholder holds at least 10% equity maintained for one consecutive year. The key issue is whether the indefinite duration of cash-pooling master agreements disqualifies the exemption, or whether the actual term of underlying credit facilities and the annual settlement of balances satisfies the temporal requirement. Tax authorities have challenged these exemptions by arguing that pooling contracts with indefinite terms don't meet the 'not exceeding one year' criterion, leading to significant stamp tax assessments on intra-group treasury operations.
How does CAAD arbitration apply to stamp tax disputes involving centralized treasury management contracts?
CAAD (Centro de Arbitragem Administrativa) arbitration provides taxpayers with an alternative dispute resolution mechanism for stamp tax controversies involving centralized treasury management. Following rejection of a Reclamação Graciosa (gracious complaint), taxpayers can request arbitral review under Decree-Law 10/2011 (RJAT). The process involves appointment of a three-arbitrator panel by the Deontological Council, acceptance of the request by CAAD's President, and notification to the Tax Authority. Both parties submit written pleadings and may present oral arguments, though hearings can be dispensed with when no exceptions are raised or evidence is required. The tribunal has jurisdiction to annul both the administrative decision and the underlying tax assessments. Deadlines are strictly regulated, with extensions possible under Article 21(2) of RJAT. This specialized arbitration offers expertise in complex tax matters like cash-pooling, where technical financial and accounting issues intersect with tax exemption requirements.
Can taxpayers challenge stamp tax liquidations on cash-pooling through a Reclamação Graciosa (administrative complaint)?
Yes, taxpayers must first challenge stamp tax liquidations through a Reclamação Graciosa (administrative complaint) before accessing CAAD arbitration. This administrative review is filed with the competent Finance Directorate and constitutes a mandatory prerequisite for subsequent arbitral proceedings under Article 10 of the RJAT. In Process 462/2017-T, the taxpayer filed Gracious Complaint no. ...2016... with the Administrative Justice Division of the Lisbon Finance Directorate against 2012 stamp duty assessments. Only after rejection of this administrative complaint could the taxpayer proceed to arbitration. The Reclamação Graciosa allows the Tax Authority to reconsider its position, potentially correcting errors without litigation. If rejected or not decided within the statutory period, taxpayers may then invoke CAAD jurisdiction. This two-tier system balances administrative efficiency with taxpayer rights to independent review, particularly valuable in technical disputes involving intra-group financing exemptions where legal interpretation and factual demonstration of treasury management purposes are contested.
What was the outcome of CAAD Process 462/2017-T regarding stamp tax on cash-pooling contracts?
While the excerpt does not provide the final decision of CAAD Process 462/2017-T, the procedural framework indicates the tribunal was properly constituted and competent to rule on the annulment request. The taxpayer sought to annul €67,570.80 in stamp tax assessments plus €10,023.41 in compensatory interest for 2012, challenging the Tax Authority's rejection of exemptions under Article 7(1)(g) and (h) of the Stamp Duty Code. The central legal dispute concerned whether cash-pooling arrangements with indefinite master agreements, but with one-year renewable credit facilities and annual balance settlements, qualified for exemption as short-term treasury operations between qualifying group companies. The taxpayer demonstrated €27.19M in financial inflows and €39.70M in outflows during 2012, evidencing annual settlement. Both parties submitted written arguments after dispensing with oral hearings. The decision deadline was extended to July 9, 2018. The outcome would establish important precedent regarding temporal requirements for stamp tax exemptions in centralized treasury management structures common among multinational groups operating in Portugal.
What are the legal grounds for annulling stamp tax assessments on intra-group cash-pooling operations in Portugal?
Legal grounds for annulling stamp tax assessments on intra-group cash-pooling include: (1) Misapplication of Article 7(1)(h) Stamp Duty Code exemptions for financial operations between qualifying shareholders (minimum 10% equity held one year) when operations don't exceed one year and exclusively serve treasury needs; (2) Incorrect interpretation of 'period not exceeding one year' by focusing on master agreement duration rather than actual credit facility terms and annual balance settlements; (3) Failure to consider that daily zero-balancing through transfers to centralizing accounts, with annual net settlement of flows, constitutes short-term financing even under indefinite framework agreements; (4) Lack of proper analysis of the economic substance showing treasury shortfall coverage rather than long-term financing; (5) Inadequate consideration of accounting evidence demonstrating that financial inflows and outflows offset within the tax year; (6) Procedural errors in assessing facts or applying legal criteria during administrative review. Taxpayers must demonstrate through bank statements, accounting records, and contractual documentation that cash-pooling operations meet all cumulative exemption requirements: shareholder qualification, annual settlement of balances, and exclusive treasury management purpose rather than structural financing.