Process: 510/2018-T

Date: June 18, 2019

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 510/2018-T) addresses whether management commissions charged by pension fund management companies are exempt from Portuguese Stamp Tax under Article 7(1)(e) of the Stamp Tax Code (CIS). The claimant, a pension fund manager, contested stamp duty assessments totaling €40,440.85 plus €5,004.01 in compensatory interest, arguing that Article 7(7) of the CIS, introduced by Law 42/2016 with interpretative character and retroactive application, unconstitutionally violated the principle of non-retroactivity enshrined in Article 103(3) of the Portuguese Constitution. The claimant maintained that the new provision innovatively restricted the exemption's scope to operations directly intended for credit granting by financial institutions, fundamentally altering the exemption's original meaning rather than merely clarifying it. The Tax Authority defended its position, asserting that Article 7(7) was genuinely interpretative, resolving existing jurisprudential controversy as evidenced by conflicting Supreme Administrative Court and Central Administrative Court decisions. The AT argued the provision clarified rather than innovated, making retroactive application constitutionally permissible. The claimant additionally sought compensation for guarantees unduly provided under Article 53 of the General Tax Law. This case exemplifies the critical distinction between interpretative and innovative tax legislation in Portuguese law, with significant implications for pension fund taxation, the boundaries of legislative interpretation, constitutional constraints on retroactive tax laws, and the CAAD arbitration framework for challenging stamp duty assessments on financial services commissions.

Full Decision

ARBITRAL DECISION

The Arbitrator Raquel Franco, appointed by the Ethics Council of the Centre for Administrative Arbitration ("CAAD") to form the Arbitral Tribunal constituted on 27.12.2018, decides in the following terms and on the grounds set forth below:

I – REPORT

A..., S.A., with collective identification number ... and registered office at ..., no. ..., ..., in Lisbon, in its capacity as manager and representative of the Pension Fund of B..., the Pension Fund of C... and the Pension Fund D..., respectively collective persons numbers ..., ... and ..., hereinafter referred to as Claimant, submitted a request for constitution of an Arbitral Tribunal and for arbitral pronouncement on 12.10.2018, which was accepted and automatically notified to the Tax and Customs Authority ("AT"), in its capacity as Defendant.

The Claimant contests the legality of the following acts:

  1. Stamp Duty tax assessment act no. 2016..., in the amount of € 40,440.85;

  2. Compensatory interest assessment acts nos. 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., in the total amount of € 5,004.01.

The Claimant further requests from the Tribunal compensation for guarantee unduly provided, in accordance with article 53 of the General Tax Law (LGT) and article 171 of the Tax Procedure and Process Code ("CPPT").

The Claimant bases its request on the thesis of unconstitutionality of the rule upon which the contested tax acts were based, by violation of the principle of non-retroactivity of tax law, provided for in article 103, no. 3 of the Constitution, embodied in the application of article 7, no. 7 of the Stamp Duty Code (CIS) in the version introduced by Law no. 42/2016, of 28 December, which the Claimant understands to establish an innovative solution for the interpretation of the exemption rule provided for in article 7, no. 1, subparagraph e) of the CIS.

The Claimant did not proceed to appoint an arbitrator, whereby pursuant to article 6, no. 2, subparagraph a) and article 11, no. 1, subparagraph a) of the RJAT, the President of the Ethics Council of the CAAD appointed the undersigned as arbitrator of the Single Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

On 06.12.2018, the parties were notified of this appointment and did not express a wish to refuse it.

In accordance with the provisions of article 11, no. 1, subparagraph c) of the RJAT, the Single Arbitral Tribunal was constituted on 27.12.2018.

On 12.02.2019, the Defendant, duly notified for this purpose, submitted its response in defense by contestation.

The parties submitted pleadings in which they reiterated their requests and respective grounds.

Summary of the Claimant's position

The present proceedings concern whether commissions charged by a pension fund management company to the funds managed by it, being subject to stamp duty in accordance with item 17.3.4 of the TGIS, benefit from the exemption provided for in subparagraph e) of no. 1 of article 7 of the Stamp Duty Code (CIS).

The AT based the assessments made not only on the aforementioned subparagraph e) of no. 1 of article 7 of the CIS, but also on no. 7 introduced by way of the 2016 Budget Law and to which article 154 of the same law conferred interpretative character, thus determining its application even to tax years prior to the entry into force of the said Law.

The Claimant contends that the changes made by the said statute have an innovative character, insofar as they materialize a delimitation of the material scope of the exemption provided for in article 7, no. 1, subparagraph e) of the CIS in terms that in no way corresponded to its literal meaning or, even to the historical circumstances in which the rule was elaborated.

Thus, it contends that the rule of no. 7 of article 7 of the CIS, added by Law no. 7-A/2016, of 30 March, insofar as it restricts the scope of the exemption to operations directly intended for the grant of credit within the framework of the activity carried out by the financial institutions and companies and other financial institutions, has an innovative nature, now delimiting the material scope of the exemption provided for in the aforementioned rule of article 7, no. 1, subparagraph e) of the CIS, in terms that did not correspond to its literal meaning and the historical circumstances in which the rule was elaborated.

And it is precisely this innovative character, argues the Claimant, that should prevent its application, since it results therefrom a manifest and gross violation of constitutional precepts fully consolidated in the Portuguese constitutional system, emphasizing the principle of prohibition of retroactivity of tax law, provided for in article 103, no. 3 of the Constitution.

Summary of the AT's position

With respect to the rule introduced by the State Budget Law for 2016, the AT contends that it merely sought to clarify the scope of the exemption in question, in the face of existing interpretative divergences, and that, therefore, its application to the present case does not constitute a retroactive application of the law.

In this regard, it is considered that it has an interpretative character "the law which, on a point where the rule of law is uncertain or controversial, comes to establish a solution that case law, by itself alone, could have adopted" (Baptista Machado, in Application of Laws in Time in the New Civil Code, p. 286 et seq.).

This means that, in order to affirm that a law has such a nature, it is necessary that, substantially, it should have brought nothing in relation to the interpreted law and should have merely resolved a legal uncertainty or controversy, giving it an understanding that case law, had it wished to do so, could already have adopted.

The interpretative rule aims, therefore, to end the controversy that arose regarding the sense that should be given to a particular law, fixing itself the sense that it should have, which shall be binding.

In the present case, it cannot be considered that there was no interpretative divergence to be resolved, since the case law of the STA and of the TCA Sul (the decision of the Central Administrative Court of the South, delivered in case no. 02754/08, of 21-09-2010 and the decision of the Supreme Administrative Court, delivered in case no. 0770/15, of 06/17/2016, advocate interpretation of article 7, no. 1, subparagraph e) of the CIS in the sense defended by the AT), as well as the opinion requests presented in the case files, prove precisely the opposite.

Thus, the State Budget Law for 2016, specifically its articles 152 and 154, constitute an interpretative aid that should not (cannot) be ignored in the task of ascertaining the meaning of the provision in question, coming the article 7, no. 7 of the CIS, added by that law, merely to clarify that which has always been the spirit of the rule concerning the scope of the exemption provided for in subparagraph e) of no. 1 of that article 7 of the CIS, in accordance with the understanding followed by the case law of higher courts, thus revealing itself as a non-innovative solution, which the judge or interpreter can reach without exceeding the limits normally imposed on the interpretation and application of law.

In addition to disagreeing with the Claimant for the reasons set out above, the AT also defends itself by saying that, being the AT subject to the principle of tax legality, by force of article 266, no. 2 of the CRP, article 8 of the LGT and article 3, no. 1 of the CPA, then its position, both in the tax inspection report and in the case, in light of what is now legally determined in the State Budget Law for 2016, cannot be different from that adopted, as the AT cannot disapply rules based on unconstitutionality.

Being unable to adopt a different course of action, this has repercussions at the level of the right to compensation for guarantee unduly provided, there being no legal support for such request, in light of the absence of error attributable to the services (cf. in this sense, the uniform case law of the STA, reflected in its decision of 03/04/2015, case no. 01529/14).

For the reasons set out, the AT concludes that the arbitral claim should be dismissed.

II. PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is materially competent and is duly constituted, in accordance with articles 2, no. 1, subparagraph a), 5 and 6, no. 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, as provided for in articles 4 and 10 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22.03.

The action is timely and the proceedings do not suffer from any nullities.

III. GROUNDS

A. FACTUAL MATTER

A.1. Proven facts

A. The Claimant is a commercial company, taxable person for CIT and IS.

B. Specifically, the Claimant is a pension fund management company ("SGFP"), developing its activity under Decree-Law no. 12/2006, of 20 January.

C. Within the framework of the aforementioned activity, the Claimant is the entity responsible for managing the defined benefit pension funds of workers from E... (F...), which are intended to finance liabilities with supplementary retirement benefits, more specifically the Pension Funds of B..., C... S.A. and Pension Fund D..., covering workers from the aforementioned companies.

D. The pension funds in question are validly constituted and registered, operating under the supervision of the Insurance and Pension Funds Supervisory Authority ("ASSFP").

E. Under the terms of Clause 8 of the Management Contracts concluded between E..., S.A., currently designated F... S.A. (F...) and the Claimant, the latter charged the following amounts:

(i) Until 2013, a management commission for the administration of the Funds, which was divided into two parts: (a) financial management commission, corresponding to the application of a fixed percentage on the Fund value; and (b) management differential, corresponding to the product of the amount that corresponds to the difference between the provision of services that allows the Claimant to obtain the objective net result and the management commissions (of all Funds) invoiced and the relative weight, at the beginning of the fiscal year, of the Fund in the set of Funds under management;

(ii) After 2013, and to each of the Funds, a management commission for the administration of the funds (management remuneration), which is divided into three parts: (a) fixed management commission, corresponding to the annual amount, divided monthly into twelfths; (b) variable management commission, corresponding to the application of a fixed percentage on the fund value; and (c) management differential, corresponding to the product of the amount that corresponds to the difference between the provision of services that allows the Claimant to obtain the objective net result and the management commissions, fixed and variable (of all funds) invoiced and the relative weight, at the end of each fiscal year, of the Fund value in the set of Funds under management.

F. In the exercise of its activity, the Claimant resorts to services provided by companies of the GROUP E.../F... wherefore, considering the centralized management of bank accounts, the collection of management commissions is occasionally made on the basis of a settlement of accounts, reason why not always the amounts effectively charged correspond to the values of bank movements, without this compromising the effective collection of commissions.

G. Following the amendment of the management contracts concluded between F... and the Claimant, made on 12.06.2013 and effective as of 01.01.2013, credit note no. ... was issued to cancel the invoices already issued during 2013 under the previous contract, the amounts already paid having been returned to F...

H. On 16.08.2013, three invoices (.../96/97) were issued destined to the three FUNDS identified above, with the invoicing of the remuneration and management commissions from January to August 2013, these having been paid on 20.08.2013.

I. The Claimant was subject to an external inspection procedure, of partial scope, concerning stamp duty, ordered by service order OI2016..., of 13-04-2016, with the objective of verifying the tax treatment of pension fund management commissions under stamp duty, during the tax year of 2013.

J. Upon conclusion of the inspection acts, the tax inspection services prepared the draft report and complied with the requirements of articles 60 of the RCPITA and 60 of the LGT.

K. The right to be heard was exercised by the Claimant.

L. Subsequently, the final report of the inspection action was drawn up, where, under articles 1, no. 1 and article 2, no. 1, subparagraph b), both of the CIS and in conjunction with item 17.3.4 of the TGIS, the determination of the Stamp Duty owed was made.

M. In the tax inspection report it was concluded that:

"Regarding the exemption of subparagraph e) of article 7 of the CIS which provides that the following are also exempt from tax, "(...) The interest and commissions charged, the guarantees provided and, likewise, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and object meet the types of credit institutions, financial companies and financial institutions provided for in community law, all of them domiciled in the member states of the European Union or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order;" this applies only to guarantees and financial operations directly intended for the granting of credit, within the scope of the activity exercised by the institutions and entities referred to in that subparagraph, it should be understood that the legislator, when saying, "and likewise the use of credit granted", identifies and delimits the intrinsic relationship existing between those realities perfectly identified and credit, and does so in the sense that this should be considered as an essential and prior element in relation to the others; the reason used by the legislator to justify the recognition of the exemption with respect to interest, commissions charged and guarantees provided shall be the same for credit, by and when those are accessories to this, that is, only the interest, commissions and guarantees that result from the prior existence of a credit granted that is directly and intrinsically related to them fall within the legal provision.

However, as there were doubts about the situations covered, the legislator in the State Budget for 2016, Law no. 7-A/2016 of 30.03, see article 152, introduced a no. 7 in that article 7, clarifying that the provision of subparagraph e) of no. 1 applies only to guarantees and financial operations directly intended for the grant of credit within the scope of the activity carried out by the institutions and entities referred to in that subparagraph, assigning an interpretative nature to the provision of this new no. 7, see Article 154 of the aforementioned Law. The legislator, with the interpretative nature of no. 7, came to restrict its application to guarantees and financial operations directly intended for the grant of credit. And this interpretative rule is immediately applicable to prior situations since it does not bring innovative content, in accordance with the provision of article 13, no. 1 of the Civil Code. […]

In reality, despite successive amendments to the rule of subparagraph e) of no. 1 of article 7 of the CIS, from its reading we can only conclude that, in reality, the legislator's intention has always been, and should be understood to remain, to limit the application of the exemption rule precisely to the grant of credit and to the interest and commissions associated with it. This exemption has as its catalyzing element the credit granted in accordance with the aforementioned provision, and which goes to meet the wording of no. 7 of the said provision, to which an interpretative nature was assigned.

Every legal rule contains within itself a statement and a provision, and decomposing subparagraph e) of no. 1 of article 7 from the perspective of the structure referred to, we obtain the following result, on the one hand, the scope of application of the exemption embodied in it is not any and every commission but only those that relate to the grant of credit and financial operations, on the other hand the universe of subjects involved is limited to financial institutions, credit institutions and financial companies.

The only reading that appears to us legitimate, as coherent, of the provision in question, is that it refers to interest, commissions charged, guarantees provided or mere use, in all cases, by reference to credit granted in accordance with what is stipulated in the provision under analysis. Just as the interpretative law corresponded already to one of the possible interpretations of the law, not being capable of frustrating safe expectations legitimately founded by the taxpayer, it cannot therefore be considered retroactive as the taxpayer claims, in its exercise of the right to be heard.

As became clear, the interpretative nature of the rule did not determine that taxpayers were confronted with a tax liability not provided for, either in the letter of the law or in the spirit of the legislator, which they did not anticipate or could in any way foresee, as alleged by the taxpayer in § 20 of the exercise of the right to be heard.

With regard to what was alleged by the taxpayer in § 21 to 23 of the exercise of the right, it is further to be noted that the legislator's intention has always been, and should be understood to remain, to limit the application of the exemption rule precisely to the grant of credit and to the interest and commissions associated with it.

The legislator understood that the interpretative sense to be given to subparagraphs e) and f) was clarified, having, through the Budget Law for 2003, restored in no. 2 the original text introduced with Law no. 150/99 which approved the Stamp Duty Code: the legislator had made the authentic interpretation of the rule in order to clarify what was its intention, and only an extensive interpretation admitted by article 10 of the EBF could distort it. […]

The elimination of no. 2 and renumbering of nos. 3 and 4 of article 6 (current article 7) should not be qualified as a repealing act; at no moment does it appear that the legislator manifested itself in a sense different from the previous one. It should only be considered that the legislator's intention did not require any rule to clarify its sense. The limit to the exemption desired by the legislator, before and after the new wording of the provision, is the same, that is, the exemption provided for in current subparagraph e), no. 1, of article 7 of the CIS only applies to commissions provided for in item 17 when they are directly linked to credit grant operations, within the scope of the activity carried out by the institutions and entities referred to in that provision, thus excluding the restoration as claimed by the taxpayer in the exercise of the right to be heard."

N. Following the final report of the inspection action, on the one hand, the stamp duty assessment no. 2016..., in the amount of € 40,440.85 was issued, and on the other hand, compensatory interest assessments nos. 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., in the total amount of € 5,004.01.

O. The Claimant filed an administrative review against the assessments referred to in the preceding paragraph on 11.05.2017.

P. The Claimant provided a bank guarantee with a view to suspending the executive process against which it was served notice on 18.01.2017.

Q. Notified of the draft denial of the administrative review, the Claimant exercised its right to prior hearing.

R. A decision denying the review was issued by means of a dispatch dated 10.07.2018 from the Head of the Tax Management and Assistance Division of the Large Taxpayers Unit.

S. The decision denying the review contains that:

"25. We are therefore concluding that the legislator's intention has always been, and should be understood to remain, to limit the application of the exemption rule precisely to the grant of credit and to the interest and commissions associated with it.

  1. No. 2 of article 37 of Law no. 30-C/2000 introduces a new provision and renumbers the previous no. 2 of article 6 which became no. 3 and, because it was understood that this has always been the legislator's intention, the legislative technique employed remained in the Budget Law for 2002 which did not touch the provisions indicated and yet, two years after the amendment introduced to article 6, the legislator understood that the interpretative sense to be given to subparagraphs e) and f) was clarified, having, through the Budget Law for 2003, restored in no. 2 the original text introduced with Law no. 150/99 which approved the Stamp Duty Code, that is, the legislator had made the authentic interpretation of the rule in order to clarify what was its intention, and only an extensive interpretation admitted by article 10 of the EBF could distort it.

  2. It should also be said that the repeal of the law consists of the "form of cessation of force of the law, which results from a new legislative manifestation in a sense different from the previous one, which may be total or partial, express or implied, depending on whether the new law states which provisions are repealed or not, the repeal resulting from incompatibility between the regimes respectively established" (Ana Prata, in "Legal Dictionary - Vol. I, 5th Edition", Almedina, 2008, p. 1232).

  3. In these terms, the elimination of no. 2 and renumbering of nos. 3 and 4 of article 6 should not be qualified as a repealing act, since at no moment does it appear that the legislator manifested itself in a sense different from the previous one: it should only be considered that the legislator's intention did not require any rule to clarify its sense and the limit to the exemption desired by the legislator, before and after the new wording of the provision, is the same, that is, the exemption provided for in current subparagraph e) of no. 1 of article 7 of the CIS only applies to commissions provided for in item 17 when they are directly linked to credit grant operations, within the scope of the activity carried out by the institutions and entities referred to in that provision.

  4. In conclusion it would be correct to affirm that there is no provision that has repealed a rule that could be considered interpretative, and which merely intended to clarify/specify the legislator's intention regarding that matter; clarified by the legislator, if such clarification was even necessary, the scope it accepted with respect to the acts/operations exempt under subparagraph e) of article 6, was found to be unnecessary the inclusion of that specific provision, and for that reason, the text previously present in no. 2 was recovered, without, in reality, having observed any repealing act conducive to that result.

  5. The guiding thread in the evolution of the exemption rule would be, therefore, defined, at first, the interest (which always presupposes the existence of credit); then, interest and credit from which those result and, finally, credit, and the interest and commissions resulting from it, whereby the proposed understanding should be maintained that the exemption in question only applies to commissions provided for in item 17 when they are directly linked to credit grant operations, within the scope of the activity carried out by the institutions and entities referred to in that provision.

  6. In reality, despite successive amendments to the wording of the rule of subparagraph e) of no. 1 of article 7 of the CIS (former article 6 of the CIS) and from reading it, we can only conclude that this exemption cannot be applied to any commission charged, but only to those that have underlying operations intended for the grant of credit.

  7. We therefore cannot agree with the position assumed by the Claimant, concluding that the management commissions charged cannot be exempt from stamp duty under that rule, since, in reality, the exemption granted in subparagraph e) of no. 1 of article 7 (former article 6) of the CIS as reworded by Law no. 107-B/2003, of 31 December, has as its catalyzing element the credit granted in the terms mentioned in such provision, understanding confirmed in the Decision of the Central Administrative Court of the South, Case no. 02754/08, of 21.09.2010 […]"

T. The decision denying the review was notified to the Claimant on 18.07.2018.

U. On 12.10.2018 the Claimant submitted the present arbitral claim.

A.2. Unproven facts

With relevance to the decision, there are no alleged facts that should be considered unproven.

A.3. Grounds for the proven and unproven factual matter

The facts relevant for the judgment of the case were selected and defined according to their legal relevance, in light of the plausible solutions of the legal issues, in accordance with the joint application of articles 123, no. 2 of the Tax Procedure and Process Code ("CPPT"), and 596, no. 1 and 607, no. 3 of the Code of Civil Procedure ("CPC"), by referral of article 29, no. 1, subparagraphs a) and e) of the RJAT.

Allegations made by the parties and presented as facts, consisting of strictly conclusive statements, incapable of proof and whose truthfulness is to be assessed in relation to the concrete factual matter consolidated, were neither taken as proven nor as unproven.

As regards the proven facts, the arbitrator's conviction was based on the positions assumed by the parties and on critical analysis of the documentary evidence filed in the case.

B. THE LAW

B.1. Regulatory framework

Pursuant to the provision of no. 1 of article 1 of the CIS:

"The 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 goods."

Furthermore, no. 2 of the same article 1 of the CIS determines that operations subject to value added tax and not exempt from it are not subject to stamp duty. In the present case, the operations are exempt from VAT in accordance with subparagraph g) of no. 27 of article 9 of the VAT Code, whereby the norm cited results in the subjection of the same to stamp duty.

Specifically, it is item 17.3.4 of the General Table of Stamp Duty that provides for the subjection to SD of these operations - "Other commissions and remuneration for financial services" - at the rate of 4%.

However, it is also important to consider the exemption rules provided for in article 7 of the CIS, notably the provision in subparagraph e), which establishes the following:

[Are also exempt from tax]:

e) The interest and commissions charged, the guarantees provided and, likewise, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and object meet the types of credit institutions, financial companies and financial institutions provided for in community law, all of them domiciled in the member states of the European Union or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order;"

As to the scope of application of this rule, Law no. 7-A/2016, of 30 March, came to, with interpretative character attributed by the rule contained in its article 154, add the following rule, now contained in no. 7:

"7 - The provision of subparagraph e) of no. 1 applies only to guarantees and financial operations directly intended for the grant of credit, within the scope of the activity carried out by the institutions and entities referred to in that subparagraph."

It is important, therefore, to decide whether, in the present case, the exemption rule is applicable to the operations carried out by the Claimant or not.

B.2. Application of the law to the present case

The present proceedings must decide whether the Stamp Duty exemption provided for in article 7, number 1, subparagraph e) of the Stamp Duty Code is applicable to the management and administration commissions charged by the Claimant to the pension funds managed by it, which, for what is relevant in this case, were charged during the year 2013.

The tax assessment decision by the AT is based not only on the exemption rules cited – in force at the date of the facts – but also on two rules posterior to the occurrence of the tax facts - no. 7 of article 7 of the CIS, and article 154, of the State Budget Law for the year 2016, Law no. 7-A/2016, of 30.03, which assigned interpretative character to that no. 7.

Neither the fact that the commissions were effectively charged to the funds managed by the Claimant nor the fact that the subjective scope of the exemption is verified (the pension funds and their respective management companies are, in the Portuguese legal system, considered as authorized or regulated financial institutions – cf., notably, subparagraph e) of no. 1 of article 30 of the Securities Code) are subject to discussion in the present proceedings.

What is at stake is whether the type of commission charged by the Claimant is included in the exemption rule invoked by it for not charging stamp duty, which implies determining whether no. 7 of article 7 of the CIS, in the version given to it by the 2016 Budget Law, applies in the present case or not.

The Claimant repudiates the application of the interpretative rule contained in no. 7 of article 7 of the CIS to tax years prior to its entry into force, on the grounds of violation of the prohibition of retroactivity contained in no. 3 of article 103 of the Constitution.

The crux of the matter is, therefore, to decide whether the interpretative rule is truly such, or whether, having innovative character, it should be applied only to tax facts occurring after its entry into force.

For this purpose, it is important to list the sequence of wordings of the rules relevant to the decision.

In the original version (contained in the then article 6), the exemption under analysis referred to the grant of credit and the charging of commissions by credit institutions.

"e) The interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and object meet the types of credit institutions and financial companies provided for in community law, all of them domiciled in the member states of the European Union, or in any state complying with the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997. […]

f) The commissions charged by credit institutions to other institutions of the same nature or entities whose form and object meet the types of credit institutions provided for in community law, domiciled in the member states of the European Union, or in any state complying with the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997".

Law no. 30-C/2000, of 29 December, added a number 2 to article 6 and, through the rule therein provided, restricted the scope of the exemption to financial operations intended for the grant of credit:

"Article 6 [...]

1 - […].

e) The interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and object meet the types of credit institutions and financial companies provided for in community law, all of them domiciled in the member states of the European Union, or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order;

f) The commissions charged by credit institutions to other institutions of the same nature or entities whose form and object meet the types of credit institutions provided for in community law, domiciled in the member states of the European Union, or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order.

2 - The provisions of subparagraphs e) and f) apply only to financial operations directly intended for the grant of credit, within the scope of the activity carried out by the institutions and entities referred to in those subparagraphs."

Through article 30 of Law no. 32-B/2002, of 30 December, the legislator combined the two modalities of financial operations in the same subparagraph, merging subparagraphs e) and f). At the same time, it eliminated the rule that was contained in no. 2 and replaced it with that of the previous no. 3:

"Stamp Duty

Article 6 of the Stamp Duty Code, approved by Law no. 150/99, of 11 September, shall have the following wording:

"Article 6

Other exemptions

1 - Are also exempt from tax: […]

e) The interest and commissions charged and, likewise, the use of credit granted by credit institutions and financial companies to venture capital companies, as well as to companies or entities whose form and object meet the types of credit institutions and financial companies provided for in community law, all of them domiciled in the member states of the European Union, or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order; […]

2 - (Previous no. 3.)

3 - (Previous no. 4.)"

With Decree-Law no. 287/2003, of 12 November, the regime of art. 6, no. 1, subparagraph e) of the CIS migrated to art. 7, no. 1, subparagraph e) of the same statute, and, subsequently, Law no. 107-B/2003, of 31 December, amended the legislative formulation of the subparagraph in question, expanding the scope of the exemption to "guarantees provided":

"e) The interest and commissions charged, the guarantees provided and, likewise, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and object meet the types of credit institutions, financial companies and financial institutions provided for in community law, all of them domiciled in the member states of the European Union or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order;"

Art. 7, no. 1, subparagraph e) of the CIS has maintained, since then, the following wording: "the interest and commissions charged, the guarantees provided and, likewise, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and object meet the types of credit institutions, financial companies and financial institutions provided for in community law, all of them domiciled in the member states of the European Union or in any state, with the exception of those domiciled in territories with privileged tax regimes, to be defined by ministerial order."

Given this, what is to be said of the interpretative character attributed to no. 7 of article 7 of the CIS by article 154 of Law no. 7-A/2016, of 30 March?

It seems to us unequivocal that the restriction of the scope of application of the exemption operated by no. 7 of article 7 of the CIS was only expressly re-established, after having been expressly eliminated in 2002, by Law no. 7-A/2016. And that, being so, the rule does not have truly interpretative character, but rather innovative character.

But even if that interpretation were to be considered controversial, the doctrine followed by the Constitutional Court in Decision no. 267/2017 would always apply: "from the Constitution's perspective, in order for a regulatory discipline self-characterized as merely interpretative to be considered constitutive of new law and, as such, substantially retroactive, a sufficient condition is the verification that the interpreted rule in its primitive version could have been imputed by the courts a meaning which, following the interpretative rule, was necessarily excluded." (emphasis ours)

We therefore conclude that the 2016 Budget Law [– Law no. 7-A/2016, of 30 March –] came to expressly restrict the field of application of the exemption in Stamp Duty provided for in subparagraph e) of no. 1 of article 7 of the CIS, and, being characterized by the legislator as interpretative, this would determine its application from the force of the interpreted rule, with the consequence that taxpayers are confronted with the imposition of a tax liability, only restricted by the rules on expiration of the tax, which they did not anticipate or could in principle foresee, in accordance with the rules of hermeneutics applicable.

In the tax domain, since the constitutional revision of 1997, the rule of article 103, no. 3 of the Constitution applies: no one can be obliged to pay taxes that have a retroactive nature. Consequently, the legislator can neither create taxes of such a nature nor introduce modifications into existing taxes that, with retroactive effects, aggravate them.

As to this matter, the Constitutional Court has, moreover, already had the opportunity to pronounce itself in Decision no. 644/2017, Case no. 519/17, 2nd Section, whose Rapporteur was Counselor Pedro Machete.

In conclusion, we understand that the Claimant is correct in raising the unconstitutionality of the rule provided for in article 154 of Law no. 7-A/2016, of 30 March, to the extent that, in assigning merely interpretative character to no. 7 of article 7 of the CIS, added to this Code by article 152 of the cited Law no. 7-A/2016, it determines the applicability in fiscal years prior to 2016, of the rule of the same no. 7, in conjunction with article 7, no. 1, subparagraph e), of the Stamp Duty Code, in the wording given by Law no. 107-B/2003, of 31 December, according to which the exemption object of such provisions does not cover the management commissions charged by management companies to the pension funds managed by them. For this reason, this arbitral tribunal understands it should refuse to apply this rule of article 154 of Law no. 7-A/2016 (article 204 of the CRP) to tax facts occurring before its entry into force, namely in the year 2013 to which the contested assessments refer.

Thus, all the requirements provided for in subparagraph e) of no. 1 of article 7 of the CIS are verified, whereby all the commissions at issue in the contested assessments, charged by a pension fund management company to the funds it manages, are covered by the exemption.

Consequently, the contested assessments are illegal, by violation of subparagraph e) of no. 1 of article 7 of the Stamp Duty Code, which justifies their annulment, in accordance with article 163, no. 1, of the Administrative Procedure Code, subsidiarily applicable in accordance with article 2, subparagraph c), of the LGT. Compensatory interest assessments are understood to be covered by this consequence, insofar as they have as their presupposition the Stamp Duty assessments, whereby, having concluded on the illegality of these, those assessments suffer from the same vices, justifying their concomitant annulment.

Request for compensation for unduly provided guarantee

The Claimant further formulates a request for compensation for unduly provided guarantee.

As has been abundantly referred to in arbitral decisions on tax matters in this Centre for Administrative Arbitration, in accordance with the provision of subparagraph b) of art. 24 of the RJAT, the arbitral decision on the merits of the claim for which there is no recourse or challenge binds the tax administration from the end of the period provided for recourse or challenge, this administration being required, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of the decisions of the tax courts, "to restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the effect".

It follows from the legislative authorization on which the Government based itself to approve the RJAT, granted by art. 124 of Law no. 3-B/2010, of 28 April, that arbitration was instituted to be an alternative form of jurisdictional resolution of disputes in tax matters - "the tax arbitration procedure should constitute an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest in tax matters".

Although art. 2, no. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals that function in the CAAD and does not make reference to constitutive (annulling) and condemnatory decisions, it should be understood, in harmony with the said legislative authorization, that the competences of the arbitral tribunals include the powers that in judicial challenge proceedings are attributed to tax courts in relation to acts whose appraisal of legality falls within their competences.

And, although the judicial challenge process is essentially a process of mere annulment (arts. 99 and 124 of the CPPT), a condemnation of the tax administration can be handed down therein for the payment of indemnity interest and compensation for unduly provided guarantee.

In fact, although there is no express rule to that effect, it has been peacefully understood in tax courts, since the entry into force of the codes of the tax reform of 1958-1965, that a request for condemnation in the payment of indemnity interest can be cumulated in a judicial challenge proceeding with a request for annulment or declaration of nullity or non-existence of the act, because in those codes it is stated that the right to indemnity interest arises when, in administrative review or judicial proceeding, the administration is convinced that there was a factual error attributable to the services. This regime was, subsequently, generalized in the Tax Procedure Code, which established in no. 1 of its art. 24 that "indemnity interest shall be owed in favor of the taxpayer when, in administrative review or judicial proceeding, it is determined that there was an error attributable to the services", then, in the LGT, in whose art. 43, no. 1, it is established that "indemnity interest is owed when it is determined, in administrative review or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally owed" and, finally, in the CPPT where it was established, in no. 2 of art. 61 (which corresponds to no. 4 in the version given by Law no. 55-A/2010, of 31 December), that "if the decision recognizing the right to indemnity interest is judicial, the payment period is calculated from the beginning of its voluntary execution period".

Regarding the request for condemnation in the payment of compensation for provision of unduly provided guarantee, art. 171 of the CPPT establishes that "compensation in case of bank guarantee or equivalent unduly provided shall be requested in the proceeding in which the legality of the debt to be executed is disputed" and that "compensation must be requested in the review, challenge or appeal or, if its ground is subsequent, within 30 days after its occurrence".

Thus, it is unequivocal that the judicial challenge proceeding comprises the possibility of condemnation in the payment of compensation for provision of unduly provided guarantee and is even, in principle, the appropriate procedural means to formulate such a request, which is justified by evident reasons of procedural economy, since the right to compensation for unduly provided guarantee depends on what is decided regarding the legality or illegality of the assessment act that constitutes the initial basis for the constitution of the guarantee.

The request for constitution of the arbitral tribunal has as a corollary the passing to the arbitral proceeding of the discussion of the "legality of the debt to be executed", whereby, as results from the express tenor of that no. 1 of the said art. 171 of the CPPT, it is also the arbitral proceeding that is appropriate for examining the request for compensation for unduly provided guarantee.

Moreover, the cumulation of requests relating to the same tax act is implicitly presupposed in art. 3 of the RJAT, when it speaks of "cumulation of requests even though relating to different acts", which suggests that the cumulation of requests is also possible in relation to the same tax act and requests for compensation for indemnity interest and condemnation for unduly provided guarantee are susceptible to being covered by that formula, whereby an interpretation in this sense has, at least, the minimum verbal correspondence required by no. 2 of art. 9 of the Civil Code.

Let us, therefore, examine the request formulated by the Claimant.

The regime of the right to compensation for unduly provided guarantee is contained in art. 53 of the LGT, which establishes the following:

Article 53

Guarantee in case of unduly provided guarantee

  1. The debtor who, to suspend execution, offers a bank guarantee or equivalent shall be indemnified wholly or partly for the losses resulting from its provision, should it have kept it for a period exceeding three years in proportion to the outcome in administrative appeal, challenge or opposition to execution having as their object the guaranteed debt.

  2. The period referred to in the previous number does not apply when it is verified, in administrative review or judicial challenge, that there was an error attributable to the services in the assessment of the tax.

  3. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed amount of the rate of indemnity interest provided for in this law and can be requested in the administrative review or judicial challenge proceeding itself, or separately.

  4. Compensation for unduly provided guarantee shall be paid by deduction from the tax revenue of the year in which the payment was made.

In the case in question, the legal error that affects the contested assessments is attributable to the Tax and Customs Authority, since they were from its initiative and the Claimant in no way contributed to that error being committed.

Thus, the Claimant has the right to be indemnified for the losses that resulted from the provision of bank guarantee no. ………. to suspend the fiscal execution proceeding no. …2017… (cf. documents 6 and 7 filed with the request for arbitral pronouncement).

In the absence of elements that allow determining the amount of compensation, the condemnation must be made with reference to what is to be assessed in execution of this decision (article 609 of the Code of Civil Procedure and article 565 of the Civil Code).

IV – DECISION

In these terms, this Arbitral Tribunal decides:

(a) To judge the request for annulment of the Stamp Duty assessment act no. 2016..., in the amount of € 40,440.85, as well-founded;

(b) To judge the request for annulment of the compensatory interest assessment acts nos. 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., in the total amount of € 5,004.01, as well-founded.

(c) To determine the full restitution of the amount of stamp duty and compensatory interest assessed;

(d) To judge the request for condemnation in the payment of compensation for the provision of bank guarantee no. ... intended to suspend the fiscal execution proceeding no. ...2017..., the amount of which shall be determined in execution of this decision.

V – Value of the proceedings

The value of the proceedings is fixed at € 45,664.86 (forty-five thousand, six hundred and sixty-four euros and eighty-six cents), in accordance with article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable by force of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

VI – Costs

The amount of the arbitration fee is fixed at € 2,142.00 (two thousand, one hundred and forty-two euros) in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Defendant.

VII - Notification to the Public Prosecutor's Office

Being the Public Prosecutor represented in the other courts in accordance with law [article 4, no. 1, subparagraph d), of the Statute of the Public Prosecutor's Office] and there being no provision in law for the representation of the Public Prosecutor with the arbitral tribunals that function in the CAAD, let this decision be notified to Her Excellency the Attorney General of the Republic, having regard to the provision of no. 3 of article 280 of the CRP.

Lisbon, 18 June 2019

The Arbitrator

(Raquel Franco)

Frequently Asked Questions

Automatically Created

Are management commissions charged by pension fund management companies exempt from Portuguese Stamp Tax under Article 7(1)(e) of the Stamp Tax Code?
Management commissions charged by pension fund management companies are generally subject to Stamp Tax under item 17.3.4 of the Stamp Tax Table (TGIS). However, the application of the exemption under Article 7(1)(e) of the Stamp Tax Code became controversial following amendments introduced by Law 42/2016. Article 7(7), added with claimed interpretative character, restricts the exemption to operations directly intended for credit granting within financial institutions' activities. The Tax Authority interpreted this as excluding pension fund management commissions from the exemption, while taxpayers argued this restriction innovatively narrowed the exemption's scope beyond its original meaning, making previously exempt commissions taxable.
Does the application of Article 7(7) of the Stamp Tax Code, as amended by Law 42/2016, violate the constitutional principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
The application of Article 7(7) of the Stamp Tax Code potentially violates Article 103(3) of the Portuguese Constitution if deemed innovative rather than interpretative. The constitutional principle prohibits retroactive application of tax laws that worsen taxpayers' positions. While Law 42/2016 declared Article 7(7) interpretative (allowing retroactive application), the claimant argued it materially innovated by delimiting the exemption's scope in ways not corresponding to the original provision's literal meaning or historical context. The key legal test is whether the provision merely clarified existing uncertainty that case law could have resolved independently, or whether it substantively altered the law's meaning, creating new tax obligations for past periods unconstitutionally.
How does CAAD arbitration process work for challenging Stamp Tax assessments on pension fund commissions in Portugal?
CAAD (Centro de Arbitragem Administrativa) provides an alternative dispute resolution mechanism for challenging Portuguese tax assessments, including Stamp Tax on pension fund commissions. The process begins with filing an arbitration request within the statutory deadline. If the claimant doesn't appoint an arbitrator, the CAAD Ethics Council President appoints a single arbitrator. The tribunal is formally constituted after notification and absence of recusals. The Tax Authority submits a defense response, followed by pleadings from both parties. The arbitrator issues a binding decision on legality of contested assessments, compensatory interest, and related claims like compensation for unduly provided guarantees under Article 53 of the General Tax Law and Article 171 of the Tax Procedure Code.
Are compensatory interest charges valid when the underlying Stamp Tax assessment on pension fund management fees is contested?
Compensatory interest charges are ancillary to the underlying Stamp Tax assessment. When the principal tax assessment is successfully contested and annulled, the compensatory interest assessments necessarily fall as well, since they lack independent legal foundation without a valid underlying tax debt. In this case, the claimant contested both the main stamp duty assessment (€40,440.85) and seven separate compensatory interest assessments (totaling €5,004.01). The validity of compensatory interest depends entirely on whether the pension fund management commissions were properly subject to Stamp Tax, which hinges on the correct interpretation of the Article 7(1)(e) exemption and the constitutional validity of Article 7(7)'s retroactive application.
Can taxpayers claim compensation for unduly provided guarantees under Article 53 of the General Tax Law in Stamp Tax disputes?
Taxpayers can claim compensation for unduly provided guarantees under Article 53 of the General Tax Law (LGT) and Article 171 of the Tax Procedure and Process Code (CPPT) when tax assessments are annulled. This compensation typically covers financial costs and damages resulting from providing bank guarantees or other securities to suspend tax collection during litigation. However, the Tax Authority contested this claim, arguing that since it acted pursuant to legislative mandate under the principle of tax legality (Article 266(2) of the Constitution, Article 8 of LGT, and Article 3(1) of the Administrative Procedure Code), and cannot disapply laws based on unconstitutionality, there exists no legal basis for compensation. The success of such claims depends on proving the assessments were unlawful and guarantees were consequently unjustified.