Process: 527/2017-T

Date: April 20, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This Portuguese tax arbitration case (Process 527/2017-T) examines whether stamp duty applies to management commissions charged by pension fund management companies under item 17.3.4 of the General Stamp Tax Table (TGIS). The claimant, a pension fund management company, challenged stamp duty assessments for 2011-2014 totaling over €658,000. The company argued that: (1) pension funds themselves should bear the tax burden as economic holders of the transaction; (2) management commissions are not 'financial operations' under item 17.3.4 as they are not performed by credit institutions under RGICSF; (3) the Tax Authority violated good faith principles by reversing its 1999 administrative guidance; and (4) the exemption in Article 7(1)(e) of the Stamp Duty Code (CIS) should apply. The Tax Authority contended that pension fund managers are financial companies subject to stamp duty on commissions, that they are the proper passive subjects under tax substitution rules (Article 28 LGT), and that Law 7-A/2016 clarified the exemption's interpretative scope to exclude such operations retroactively. The case raises fundamental questions about the subjective scope of stamp duty on financial services, the boundaries of tax exemptions for pension-related activities, the constitutional limits of retroactive tax interpretation, and the binding nature of administrative guidance under the principle of legitimate expectations (Article 68-A LGT). The tribunal's decision would significantly impact how pension fund management fees are taxed in Portugal.

Full Decision

ARBITRAL DECISION

The arbitrators Counselor Carlos Fernandes Cadilha (arbitrator-president), Dr. Ricardo Rodrigues Pereira and Prof. Doctor Paulo Nogueira da Costa (arbitrator-members), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, agree as follows:

I – Report

  1. A…, S. A., with collective person number …, with registered office at …, n.º…, in Lisbon, came to request the constitution of an arbitral tribunal, under the provisions of articles 2.º, n.º 1, subsection a), and 10.º of Decree-Law no. 10/2011, of 20 January, to appraise the legality of the tax acts for stamp duty assessment, with reference to the years 2011, 2012, 2013 and 2014, in the amounts of € 45,234.09, € 185,486.90, € 205,554.71 and € 222,389.02, respectively, as well as the assessment of compensatory interest.

It alleges, in summary, that the tax acts resulted from the correction of stamp duty assessed, following an inspection action carried out by the Tax Authority, which was based on the improper classification under item 17.3.4 of the General Table of Stamp Duty of the management commissions charged to Pension Funds and the failure to recognize the tax exemption regime provided for in article 7.º, n.º 1, subsection e), of the Stamp Duty Code.

The Claimant argues that, although it is the passive subject of the tax, under article 2.º, n.º 1, subsection b), of the Stamp Duty Code, the corresponding charge should be borne by the Pension Funds, as holders of the underlying economic interest in the transaction (articles 1.º and 3.º, n.ºs 1 and 3, subsection g), of the Stamp Duty Code), with a situation of tax substitution without withholding to which the provisions of article 28.º of the General Tax Law do not apply, and therefore the impugned tax acts violate the provisions of those legal dispositions.

Moreover, the commissions charged to the Pension Funds do not constitute financial operations for the purposes of item 17.3.4 of the General Stamp Duty Table, since as such should be understood only those operations carried out by credit institutions and financial companies covered by the General Regime of Credit Institutions and Financial Companies and which may be covered by the subjective scope of that legislation, under article 8.º, n.º 2, thereof.

The impugned tax acts further call into question the generic guidance adopted by the dispatch of 17 March 1999, to which the Tax Administration was bound under article 68.º-A, of the General Tax Law, involving the violation of the principle of good faith and protection of confidence enshrined in article 266.º, n.º 2, of the Constitution.

On the other hand, even if the commissions charged to the Pension Funds could be included in the concept of financial operations for the purposes of item 17.3.4 of the General Stamp Duty Table, they would be covered by the tax exemption regime referred to in article 7.º, n.º 1, subsection e), of the Stamp Duty Code, since there is no evidence that the legislator intended to limit the scope of application of that rule to interest and commissions connected with credit granting operations in which credit institutions and financial entities participate, and it should be understood that the attribution of interpretative nature to the rule of article 7.º, n.º 7, of the Stamp Duty Code, added by Law n.º 7.º-A/2016, of 30 March, for the purpose of making it applicable to tax facts prior to its entry into force, is unconstitutional by violation of the principles of non-retroactivity of tax law, protection of confidence and legal certainty.

Even if this were not understood to be the case, the commissions charged to the Pension Funds would be exempt from stamp duty by virtue of the provisions of article 4.º of Decree-Law n.º 20/86, of 13 February, and article 8.º of Decree-Law n.º 1/87, of 3 January, which establish tax benefits for Real Estate Investment Funds.

Finally, the Claimant considers that there was grounds for the correction of the stamp duty assessment with regard to the portion of commissions charged that are subsequently returned to the Pension Funds and which are reflected in the accounting records as an expense.

The Tax Authority submitted its reply, arguing, in summary, that, although the burden of the tax belongs to the debtors of the commissions, the pension fund management company is the passive subject of the tax and responsible for its assessment and payment, with grounds for responsibility through tax substitution under the provisions of article 28.º, n.º 1, of the General Tax Law.

On the other hand, pension fund management companies, although regulated by special legislation, should be understood as financial companies, under and for the purposes of item 17.3. of the General Stamp Duty Table, and the commissions charged to pension funds correspond to consideration for financial services, which, as such, fall within the scope of application of item 17.3.4 for purposes of stamp duty incidence.

It further follows that n.º 7 of article 7.º of the Stamp Duty Code, added by Law n.º 7-A/2016, of 30 March, limited the exemption provided in subsection e) of n.º 1 of that article to financial operations directly intended for the granting of credit, excluding other operations such as those carried out by pension fund management companies, and, as that rule has an interpretative nature, in that it was intended to decide a question of law whose solution was controversial and uncertain, it is integrated into the interpreted rule preventing any violation of the principle of non-retroactivity of the law.

The Respondent further contests that there are grounds for the correction of the tax assessment, having regard to the fact that the tax was levied on the management commissions and the circumstance that the parties agreed to the allocation of a certain percentage value of those commissions as participation units constitutes mere contractual liberality that does not characterize as a return, annulment or reduction of the commissions.

  1. Testimonial proof was not requested to be produced and, in the course of the proceedings, the meeting referred to in article 18.º of the Arbitral Tribunal Regulations was dispensed with and the notification of the parties to submit optional written submissions was ordered.

The Claimant and the Respondent submitted submissions within successive periods, maintaining their previous positions on the merits of the substantive issues.

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

Under the provisions of subsection a) of n.º 2 of article 6.º and subsection b) of n.º 1 of article 11.º of the Arbitral Tribunal Regulations, as amended by article 228.º of Law n.º 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable period.

The parties were timely and properly notified of this designation and did not express unwillingness to refuse it, under the combined provisions of article 11.º, n.º 1, subsections a) and b), of the Arbitral Tribunal Regulations and articles 6.º and 7.º of the Deontological Code.

Thus, in compliance with what is provided in subsection c) of n.º 1 of article 11.º of the Arbitral Tribunal Regulations, as amended by article 228.º of Law n.º 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 14 December 2017.

The arbitral tribunal was regularly constituted and is materially competent in light of the provisions of articles 2.º, n.º 1, subsection a), and 30.º, n.º 1, of Decree-Law n.º 10/2011, of 20 January.

The parties have legal personality and capacity, are legally entitled and are represented (articles 4.º and 10.º, n.º 2, of the same legislation and 1.º of Ordinance n.º 112-A/2011, of 22 March).

The proceedings are not affected by any nullities and no exceptions were raised.

Cumulation of claims is admitted – various stamp duty assessment acts are at issue, with the Claimant requesting the declaration of illegality and annulment of each one – due to the fact that the success of the claims formulated by the Claimant depends essentially on the appraisal of the same factual circumstances and the interpretation and application of the same principles or rules of law.

It falls to be appraised and decided.

II - Reasoning

Factual Matters

  1. The facts relevant to the decision in the case that may be considered established are as follows:

A) The Claimant is a pension fund management company that exercises the activity of administration, management and representation of pension funds and is governed by the provisions of Decree-Law n.º 12/2006, of 20 January.

B) In the course of its activity, the Claimant directly charges commissions to participants in pension funds within the provision of management and administration services for those funds.

C) The commissions are accounted for by the Claimant as income in account 7211 – management commissions, 7212 – performance commissions, 7213 – subscription commissions, and 7214 – redemption commissions.

D) Under the terms of the collective adhesion contract concluded with B… and C… a value of 1% is applied on the net value of the funds, and under the terms of the collective adhesion contract concluded with D…, a value of 1.5% is applied on the net value of the funds, with subsequent retrocession in favor of the funds of 0.75% and 1.25%, respectively, through the issuance of participation units in corresponding value.

E) The Tax Authority initiated an inspection action in relation to the Claimant (Service Orders OI2015…, OI2015…, OI2015…, OI2015… of 30.03.2015), with reference to the years 2011, 2012, 2013 and 2014, with the objective of verifying the tax classification of pension fund management commissions under stamp duty.

F) Following that inspection action, arithmetic corrections were made to stamp duty in the amounts of € 39,167.88, 163,994.54, 188,306.69 and 211,875.69, relating to the years 2011, 2012, 2013 and 2014, respectively, in the total amount of € 603,344.80.

G) Subsequently, the Claimant was notified of the tax acts for stamp duty assessment and compensatory interest, with reference to the years 2011, 2012, 2013 and 2014, in the amounts of € 45,234.09, € 185,486.90, € 205,554.71 and € 222,389.02.

H) The Claimant made timely and full payment of those stamp duty assessments and compensatory interest.

I) The Claimant lodged an administrative complaint against those tax acts (filed as case n.º …2016…) which, following the exercise of prior hearing, was the subject of dismissal by dispatch of the Deputy Director of Finance of the Finance Department of Lisbon, of 28 June 2017, which was notified to the Claimant by letter n.º…, of 3 July 2017, sent by registered mail.

J) The decision to dismiss the administrative complaint was based on the report of the tax inspector, of 20 March 2017, which is part of the administrative file attached to the case, and, especially, in paragraphs 18 to 64 thereof, which are hereby reproduced.

K) On 29 September 2017, the Claimant filed the request for the constitution of an arbitral tribunal that gave rise to the present proceedings [cf. information management system of the Administrative Arbitration Centre].

With relevance to the appraisal and decision in the case, no facts remain unproven.

The Tribunal formed its conviction as to the proven facts based on the documents attached to the petition and those contained in the administrative file submitted by the Tax Authority with its reply.

Questions of Law

  1. The central question in debate is whether the commissions charged by pension fund management companies are subject to stamp duty in application of the combined provisions of items 17.3 and 17.3.4 of the General Table of Stamp Duty.

In the negative, the Claimant raises different considerations: (i) pension fund management companies cannot be classified as credit institutions or financial companies under article 8.º, n.º 2, of the General Regime of Credit Institutions and Financial Companies and only commissions charged by entities of that nature can be included in item 17.3.4 of the General Stamp Duty Table for purposes of stamp duty incidence; (ii) the commissions charged to Pension Funds are covered by the tax exemption regime referred to in article 7.º, n.º 1, subsection e), of the Stamp Duty Code; (iii) the interpretative rule of article 7.º, n.º 7, of the Stamp Duty Code, added by Law n.º 7.º-A/2016, of 30 March, in limiting the scope of application of that exemption rule to financial operations directly intended for the granting of credit, is unconstitutional by violation of the principles of non-retroactivity of tax law, protection of confidence and legal certainty, when applied to tax facts prior to its entry into force.

In another line of argument, the Claimant contends that it is not responsible for the assessment and payment of the tax, which rather constitutes a charge on the Pension Funds, as holders of the underlying economic interest in the financial transaction, that the impugned tax acts further call into question the generic guidance adopted by the dispatch of 17 March 1999, to which the Tax Administration was bound under article 68.º-A, of the General Tax Law, and, in any case, the commissions charged to Pension Funds would benefit from the exemption applicable to real estate investment funds, under article 4.º of Decree-Law n.º 20/86, of 13 February, and article 8.º of Decree-Law n.º 1/87, of 3 January.

The Claimant further deduces a subsidiary claim with a view to the correction of the assessed stamp duty value, in the event that grounds for taxation are found, by considering that part of the commissions charged are subsequently returned to the Pension Funds as participation units.

Legal Nature of Pension Fund Management Companies

  1. The first question that arises concerns the scope of incidence of item 17.3.4 of the General Stamp Duty Table, which refers to "commissions and consideration for financial services" resulting from "operations carried out by or with the intermediation of credit institutions, financial companies or other entities legally assimilated to them and any other financial institutions" (item 17.3.).

The Claimant argues that the normative provision presupposes the cumulative fulfillment of an objective requirement (financial services) and a subjective requirement (financial institutions) such that only financial operations legally reserved for financial companies that are subject to the General Regime of Credit Institutions and Financial Companies could be subject to stamp duty.

In that sense would point the provisions of article 6.º, n.º 3, of that Regime, which excludes from the concept of "financial companies" insurance companies and pension fund management companies, and article 8.º, n.º 2, which defines the financial activities that credit institutions and financial companies are authorized to carry out.

This is not, however, the understanding uniformly endorsed by arbitral case law and there is no reason to change it now (cf. decisions delivered in Cases n.ºs 348/2016, 633/2016, 667/2016, 9/2017 and 441/2017).

The wording used in item 17.3. of the General Stamp Duty Table encompasses not only "credit institutions, financial companies or other entities legally assimilated to them", but also "any other financial institutions". The reference to credit institutions and financial companies may be understood as intended to encompass the types of financial institutions whose process of establishment and exercise of activity is especially regulated in the General Regime of Credit Institutions and Financial Companies. The mention made to any other financial institutions has the unequivocal meaning of encompassing other types of institutions of that nature that are the subject of special legislation and, therefore, are not framed within the general regime of the financial system.

In that sense, the restriction contained in article 6.º, n.º 3, of the General Regime of Credit Institutions and Financial Companies assumes no relevance when it excludes from the concept of financial companies insurance companies and pension fund management companies. As results from the initial segment of the provision, that exclusion is relevant only for the purposes of the regime provided for in that legislation, which means that insurance companies and pension fund management companies, although they may be understood as financial companies, are not subject to the specific regulation resulting from the General Regime approved by Decree-Law n.º 298/92. This constitutes, however, a mere choice of the legislator which, as emerges from the preamble of the legislation, intended to carry out reform of the national financial system, through the transposition of various Community directives, referring to a specific regime the sector of insurance and pension funds.

As regards pension funds and pension fund management companies, their constitution and operation is especially provided for in Decree-Law n.º 12/2006, of 20 January, which intended to transpose into domestic law Directive n.º 2003/41/CE, of the European Parliament and of the Council, of 3 June, relating to the activities and supervision of institutions for occupational retirement provision.

The law characterizes companies constituted exclusively for the management of pension funds as management companies to which it falls to carry out all acts and operations necessary or convenient for the proper administration and management of the fund (articles 32.º, 1, and 33.º) and their activity is supervised by the Insurance Supervision and Pension Funds Authority, which, as an independent administrative entity, has the mission to ensure the regular functioning of the insurance market and pension funds (articles 36.º and 37.º of Decree-Law n.º 1/2015, of 6 January).

In any case, it is clear, within the Community legislative framework, that institutions for occupational retirement provision are financial institutions and intervene in the financial services market, and should be considered integrated in the broad concept of financial companies (recitals 1, 2 and 4 of Directive n.º 2003/41/CE).

For all the foregoing, and given the breadth of the tax incidence rule, it is not proper to assert that only commissions charged for financial services provided by entities to which the General Regime of Credit Institutions and Financial Companies applies are encompassed by item 17.3.4. The rule encompasses the financial services of any financial institutions, regardless of the legal regime that regulates the exercise of their activity, and therefore it cannot fail to be applied to commissions that remunerate the services of pension fund management companies.

Tax Exemption Provided for in Article 7.º, n.º 1, Subsection e), of the Stamp Duty Code

  1. In another respect, the Claimant contends that the commissions charged by pension fund management companies, even if they could be included in the concept of financial operations for the purposes of item 17.3.4 of the General Stamp Duty Table, would still be covered by the tax exemption regime referred to in article 7.º, n.º 1, subsection e), of the Stamp Duty Code, which exempts from tax "interest and commissions charged, guarantees provided and, as well as, the use of credit granted by credit institutions, financial companies and financial institutions".

The Tax Authority contends that that rule only refers to interest and commissions connected with credit granting operations in which credit institutions and financial entities participate and that this clarification came to be made by n.º 7 of article 7.º, added by Law n.º 7.º-A/2016, of 30 March, to which an interpretative nature was attributed (article 154.º).

This is the question that it is now relevant to elucidate and which justifies preliminarily a brief review of the legislative evolution of the provision.

In its original wording, the Stamp Duty Code, in its article 6.º, provided for tax exemption for the granting of credit and the charging of commissions by credit institutions, in the following terms:

1 - Are also exempt from tax:

(...)

e) Interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and purpose fill the types of credit institutions and financial companies provided for in Community legislation, all 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) Commissions charged by credit institutions to other institutions of the same nature or entities whose form and purpose fill the types of credit institutions provided for in Community legislation, 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 n.º 30-C/2000, of 29 December, having maintained in substance the exemption regime provided for in those dispositions, introduced a n.º 2 in which it stipulated that "[t]he provisions of subsections e) and f) apply only to financial operations directly intended for the granting of credit, within the scope of the activity carried out by the institutions and entities referred to in those subsections", thus restricting the objective scope of the exemption referred to in subsection f), which came to apply only to financial operations directly intended for the granting of credit.

That n.º 2 was subsequently eliminated by Law n.º 32-B/2002, of 30 December, which further reformulated subsection e) of n.º 1 of article 6.º so as to include in that single provision the exemptions previously provided for in subsections e) and f), and came to have the following wording:

e) Interest and commissions charged and, as well as, 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 purpose fill the types of credit institutions and financial companies provided for in Community legislation, all domiciled in the Member States of the European Union, or in any State, with the exception of those domiciled in territories with privileged tax regime to be defined by ordinance of the Minister of Finance.

With Decree-Law n.º 287/2003, of 12 November, the regime of that subsection e) of n.º 1 of article 6.º came to be contained in subsection e) of n.º 1 of article 7.º and Law n.º 107-B/2003, of 31 December, amended the wording of that subsection, extending the scope of application of the exemption to "guarantees provided".

The provision remained unchanged since then, currently having the following wording:

e) Interest and commissions charged, guarantees provided and, as well as, 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 purpose fill the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regime, to be defined by ordinance of the Minister of Finance.

In the meantime, Law n.º 7-A/2016, of 30 March, in its article 152.º, came to add a n.º 7 to article 7.º of the Stamp Duty Code, in which it prescribes: "[t]he provisions of subsection e) of n.º 1 apply only to guarantees and financial operations directly intended for the granting of credit, within the scope of the activity carried out by the institutions and entities referred to in that subsection". On the other hand, article 154.º of that Law attributed this n.º 7 the nature of an interpretative rule.

  1. The historical evolution of article 7.º, n.º 1, subsection e), of the Stamp Duty Code evidences that only in its original version, which related the exemption to the granting of credit and the charging of commissions by credit institutions and, subsequently, with the addition of a n.º 2 to that article by Law n.º 30-C/2000, which restricted the scope of the exemption to financial operations directly intended for the granting of credit, did the scope of application of the exemption become circumscribed to credit operations (objective incidence) and to credit institutions (subjective incidence).

With the consolidation of the verbal formula "interest and commissions charged and, as well as, the use of credit granted by credit institutions and financial companies", resulting from the new wording given by Law n.º 32-B/2002, and the concomitant elimination of n.º 2, it became clear that the rule aims at two distinct purposes: on the one hand, the charging of interest and commissions, and on the other, the granting of credit.

And it is in that sense that the historical element of interpretation also points. It cannot fail to be noted that until the reformulation carried out by Law n.º 32-B/2002, the law separately contemplated interest charged and the use of credit (subsection e) and commissions charged by credit institutions (subsection f). The assimilation of these two types of financial operations in a single legal provision cannot have the effect of mischaracterizing the scope of incidence of the exemption, leading to the association of interest and commissions with the granting of credit itself.

In this context, the rule of n.º 7 of article 7.º of the Stamp Duty Code, added by Law n.º 7-A/2016, in that it restricts the scope of the exemption to operations directly intended for the granting of credit within the scope of the activity carried out by the institutions and financial companies and other financial institutions referred to, is of an innovative nature, coming to delimit the material scope of the exemption provided for in that rule of article 7.º, n.º 1, subsection e), in terms that did not correspond to the literal meaning and the historical circumstances in which the rule was drafted.

Interpretative Rule and the Principle of the Prohibition of Retroactivity of Tax Law

  1. In the 1997 revision, the Constitution came to provide, in its article 103.º, n.º 3, that no one can be obliged to pay taxes that have a retroactive nature, enshrining a principle of prohibition of retroactivity of taxes that already constituted a consequence of the principle of protection of confidence inscribed in the principle of the rule of law (article 2.º).

Consequently, as has been emphasized by constitutional case law, the legislator cannot create taxes with such nature or introduce in existing taxes modifications that, with retroactive effects, aggravate tax situations already defined, namely the quantum due under a certain tax and previously defined in accordance with the applicable law at the time the relevant facts occurred (Constitutional Court Decision n.º 644/2017).

The mentioned constitutional prohibition has implications regarding interpretative laws in the fiscal domain.

As results from article 13.º, n.º 1, of the Civil Code, an interpretative law is considered integrated in the interpreted law, which means that its effects are retroactive to the date of entry into force of the old law, with everything happening as if it had been published on the date on which the interpreted law was published.

The interpretative law thus assumes, in those terms, an effect of formal retroactivity: there is retroactivity because the law becomes applicable to facts and situations prior, and the retroactivity is merely formal in that the law merely enshrines one of the possible interpretations of the prior law with which the interested parties could and should have reckoned, and which is not susceptible of violating secure and legitimately founded expectations. Differently, if the new law intends to apply to facts and legal situations previously governed by certain law, then that latter law is modified, violating expectations as to its continuity, and such law, in that it innovates relative to prior law, will be substantial or materially retroactive (cf. Baptista Machado, Introduction to Law and Legitimizing Discourse, Coimbra, 1983, pp. 246-247).

As explained in Constitutional Court Decision n.º 267/2017, "from the perspective of protecting the confidence of the addressees of the law, it is relevant that the formally retroactive interpretative law merely declares pre-existing law; whereas the substantively retroactive interpretative law, by modifying pre-existing law, constitutes new law. This is what happens when the legislator expressly declares or qualifies as "interpretative" a certain provision of a new law, even when that provision is in reality innovative. A law that modifies pre-existing law – the same is to say, that constitutes new law – under the guise of "interpretative law" will necessarily violate any prohibition of retroactive laws valid for its material scope of application".

This is the situation in the case.

In the proposal to dismiss the administrative complaint filed against the tax acts for stamp duty assessment, the tax administration services invoked the interpretative character of the provision of n.º 7 of article 7.º of the Stamp Duty Code, to exclude the exemption provided in subsection e) of n.º 1 of that article in relation to financial operations not directly intended for the granting of credit and that reasoning came to be accepted by the dispatch dismissing the complaint.

That normative solution, resulting from the combination of n.ºs 1, subsection e), and 7 of article 7.º of the Stamp Duty Code, as a consequence of the addition of that n.º 7 by article 154.º of Law n.º 7-A/2016, is innovative and aggravates the legal position of the passive subject who is thus prevented from benefiting from the tax exemption regime. And, having been applied to the years 2011, 2012, 2013 and 2014, and therefore to tax years prior to the entry into force of the Law, that solution becomes substantially retroactive and, to that extent, incompatible with the prohibition of the imposition of retroactive taxes.

It is understood, in these terms, that it is unconstitutional, by violation of the principle of prohibition of retroactivity of taxes enshrined in article 103.º, n.º 3, of the Constitution, the normative interpretation of the combined provisions of articles 7.º, n.º 1, subsection e), and n.º 7 of the Stamp Duty Code and 154.º of Law n.º 7-A/2016, of 30 March, according to which the exemption provided in that subsection e) of n.º 1 applies only to guarantees and financial operations directly intended for the granting of credit, within the scope of the activity carried out by the institutions and entities referred to therein.

That same judgment of unconstitutionality was confirmed by Constitutional Court Decision n.º 644/2017, in a motion for reconsideration of a summary decision, and adopted, in a similar situation, by the arbitral decisions delivered in Cases n.ºs 348/2016, 303/2017, 352/2017 and 441/2017.

As a necessary consequence of the refusal to apply the normative interpretation deemed unconstitutional, the tax acts for stamp duty assessment are illegal, as is the decision to dismiss the administrative complaint of 9 May 2017, and the assessments of compensatory interest (which presuppose the controversial stamp duty assessments) referred to in the present request for arbitral pronouncement.

Questions Affected by Knowledge of Other Issues

  1. Given that the request for arbitral pronouncement should be judged to be successful on the grounds of violation of law, which ensures stable and effective protection of the interests of the Claimant, the appraisal of the remaining questions raised is prejudiced, which, for reasons of logical precedence, arise in a relationship of subsidiarity to the central question regarding the scope of application of the tax exemption provided in subsection e) of n.º 1 of article 7.º of the Stamp Duty Code.

Indemnificatory Interest

  1. The Claimant, having made voluntary payment of the assessed stamp duty, comes to request the reimbursement of the amounts unduly paid, plus indemnificatory interest, in application of the provisions of articles 43.º of the General Tax Law and 61.º of the Code of Tax Procedure.

The mentioned dispositions provide for the assessment of indemnificatory interest for unduly paid tax obligation, from the date of payment until the issuance of the credit note, when the requirement of the tax obligation is attributable to error of the services.

In the case in question, relevance was given, to the decision that came to be adopted by the Administration, to the addition of the rule of n.º 7 of article 7.º of the Stamp Duty Code, to which an interpretative nature was attributed.

The Administration is subordinated to the principle of legality (article 266.º, n.º 2, of the Constitution), and cannot fail to comply with the provisions of the law under the pretext of its unconstitutionality, a task which, in diffuse terms, and as provided in article 213.º, is only conferred on the courts (Gomes Canotilho/Vital Moreira, Constitution of the Portuguese Republic Annotated, vol. II, 4th edition, p. 800).

Basing the arbitral decision on the refusal to apply a norm due to its unconstitutionality, the presupposition on which the condemnation to indemnificatory interest depends does not exist.

III – Decision

In these terms the arbitral tribunal agrees:

a) To judge the request for arbitral pronouncement to be successful;

b) To annul the stamp duty assessments n.º 2015…, n.º 2015…, n.º 2015…, and n.º 2015…, relating to the years 2011, 2012, 2013 and 2014, as well as the compensatory interest assessments n.ºs 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, relating to the year 2011; 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, relating to the year 2012; 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, relating to the year 2013, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, relating to the year 2014;

c) To annul the decision to dismiss the administrative complaint n.º …2016…;

d) To absolve the Respondent of payment of indemnificatory interest;

e) To condemn the Tax and Customs Authority to pay the costs of the proceedings.

Value of the Case

The Claimant indicated as the value of the case the amount of € 658,664.72 which was not contested by the Respondent, and corresponds to the value of the assessment that it was intended to oppose (article 97.º, n.º 1, subsection a), of the Code of Tax Procedure).

Costs

Under the provisions of articles 12.º, n.º 2, and 24.º, n.º 4, of the Arbitral Tribunal Regulations, and 3.º, n.º 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 9,792.00, to be borne by the Respondent.

Notification to the Public Prosecutor's Office

Considering the refusal to apply a rule contained in an act of legislation, the Public Prosecutor's Office, represented by the Lord Attorney General of the Republic, shall be notified, under and for the purposes of articles 280.º, n.º 3, of the Constitution and 72.º, n.º 3, of the Law of the Constitutional Court.

Notify.

Lisbon, 20 April 2018.

The Collective Arbitral Tribunal,

Carlos Fernandes Cadilha
(Arbitrator-President)

Ricardo Rodrigues Pereira
(Arbitrator-Member)

Paulo Jorge Nogueira da Costa
(Arbitrator-Member)

Frequently Asked Questions

Automatically Created

Are management fees charged to Pension Funds by fund management companies subject to Stamp Tax under item 17.3.4 of the General Stamp Tax Table?
Yes, according to the Tax Authority's position, management commissions charged to pension funds by management companies constitute financial operations subject to stamp duty under item 17.3.4 of the TGIS. The Authority argues that pension fund managers should be considered financial companies for stamp tax purposes, even though they are regulated by special legislation rather than the RGICSF. However, the claimant contests this classification, arguing that only operations by credit institutions and financial companies expressly covered by RGICSF should fall under item 17.3.4.
Does the exemption under Article 7(1)(e) of the Portuguese Stamp Tax Code apply to commissions charged by Pension Fund Management Companies?
The application of the Article 7(1)(e) exemption is disputed. The claimant argues it should apply to pension fund management commissions as financial operations. However, the Tax Authority contends that Article 7(7) CIS, added by Law 7-A/2016, limited this exemption to financial operations directly intended for credit granting, excluding pension fund management services. The Authority claims this provision has interpretative nature and applies retroactively. The claimant challenges this interpretation as unconstitutional, violating principles of non-retroactivity, legal certainty, and legitimate expectations.
Who bears the economic burden of Stamp Tax on financial operations involving Pension Funds under Articles 1 and 3 of the CIS?
Under the claimant's interpretation of Articles 1 and 3 CIS, the pension funds themselves should bear the economic burden of stamp tax as holders of the underlying economic interest, with the management company acting merely as a tax substitute without withholding obligations under Article 28 LGT. Conversely, the Tax Authority argues that the pension fund management company is the proper passive subject responsible for assessment and payment through tax substitution, with the economic burden ultimately falling on the pension fund as commission debtor, but with the manager holding legal responsibility for compliance.
Can the Portuguese Tax Authority retroactively change its interpretation of Stamp Tax rules in violation of the principle of good faith and legitimate expectations under Article 68-A of the LGT?
The claimant argues that the Tax Authority violated Article 68-A LGT and constitutional principles of good faith and legitimate expectations (Article 266(2) CRP) by reversing its position established in a March 17, 1999 administrative guidance that excluded pension fund management commissions from stamp duty. The principle of legitimate expectations protects taxpayers who relied on consistent administrative interpretations. However, the Tax Authority may argue that subsequent legislative changes, particularly Law 7-A/2016, clarified the law's correct interpretation, though the claimant challenges whether such 'interpretative' legislation can constitutionally apply retroactively to change settled administrative practice.
Do Pension Fund management fees qualify as financial operations performed by credit institutions under the RGICSF for Stamp Tax purposes?
This is a central dispute in the case. The claimant argues that pension fund management fees do not qualify as financial operations under item 17.3.4 TGIS because pension fund managers are not credit institutions or financial companies covered by the RGICSF (General Regime of Credit Institutions and Financial Companies) under its Article 8(2). The Tax Authority counters that pension fund management companies, despite being regulated by special legislation, should be understood as financial companies for stamp duty purposes under the broad scope of item 17.3 TGIS, and that their management commissions constitute remuneration for financial services falling within item 17.3.4's taxable scope.