Stamp Tax on Share Acquisitions: CAAD Ruling 531/2016-T on Verba 10.1 Partial Annulment

ARBITRAL DECISION

The arbitrators Councillor Maria Fernanda dos Santos Maçãs (President), Dr. José Ramos Alexandre (Member) and Olívio Mota Amador (Member) appointed by the Deontological Board of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, hereby agree as follows:

I. REPORT

1. A…, legal entity no. …, with registered office at …, …, 12th floor, in Hong Kong and B…, legal entity no. …, with registered office at …, …, floor 19/F, rooms … and …, in Hong Kong, (hereinafter referred to as the "Claimants") submitted, on 30-08-2016, under article 2, no. 1, subsection a) and articles 10 et seq. of the Legal Framework for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LFTA"), a request for arbitral determination aimed at assessing the legality of two Stamp Tax assessment acts.

2. The claim subject to the request for arbitral determination consists of the partial annulment of Stamp Tax assessment acts nos. … and … and the consequent reimbursement of tax improperly assessed and paid in excess in the amount of € 437,543.49 (four hundred thirty-seven thousand five hundred forty-three euros and forty-nine cents).

The Tax and Customs Authority (hereinafter referred to as the "Respondent") is the Respondent.

1. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the AT on 19-09-2016.

The Claimants did not proceed with the appointment of an arbitrator, therefore, in accordance with the provisions of subsection a) of no. 2 of article 6 and subsection b) of no. 1 of article 11 of the LFTA, the President of the Deontological Board appointed the undersigned as arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of their appointment within the deadline.

On 03-11-2016, the parties were notified of the appointment of the arbitrators and raised no objection.

In accordance with the provision in subsection c) of no. 11 of the LFTA, the Collective Arbitral Tribunal was constituted on 18-11-2016.

In these terms, the Arbitral Tribunal is regularly constituted to hear and decide on the subject matter of the case.

1. To support the request for arbitral determination the Claimants allege, in summary, the following:

4.1. The claimants A… and B…, both companies with registered offices in Hong Kong, hold, in equal parts, the entire capital stock of C…, Single-Member Limited Company (hereinafter referred to as "C…"), a company with registered office in Portugal.

4.2. The Claimants, in the pursuit of their respective corporate purpose and economic activity, acquired, through C…, the entire capital stock of the company D… S.A. (hereinafter "D…") from a group of seven companies composed of E…, F…, Ltd., G…, S.A. (representing H…– Venture Capital Fund), I… SGPS, S.A., J…, S.A., K…, SGPS, Single-Member Company, Ltd. and L….

4.3. The Claimants, through C…, entered into an agreement with the seven companies identified in the previous item, on 02-10-2015, a share purchase and sale agreement called "Share Sale and Purchase Agreement".

4.4. The Claimants, under the terms of the agreement concluded, were obliged to present a "Comfort letter" (hereinafter "Letter of Comfort") to guarantee that C… possessed the necessary financial capacity to acquire D….

4.5. The Claimants issued, on 02-10-2015, a Letter of Comfort in favor of the Selling Companies, in which they expressly stated that they had financial resources to make available to C… the amount necessary to pay for the acquisition price of D…, when the operation was completed (Completion Date).

4.6. The Letter of Comfort, referred to in the previous item, constituted a guarantee, for a maximum period of 5 months, to the Selling Companies in the total value of € 326,135,577.05 which assured the following items:

i) Acquisition of Shares: € 138,391,827.71

ii) Acquisition of Supplementary Contributions: € 24,057,250.00

iii) Acquisition of Supplies: € 124,887,674.12

iv) Payment of Junior Obligations: € 33,290,701.00

v) Deferred Completion Amount: € 5,508,124.22

4.7. The transaction was completed on 18-11-2015 for the amount of € 320,656,012.80.

4.8. The Claimants proceeded with the assessment of Stamp Tax, at the rate of 0.04% provided for in item 10.1 of the General Table of Stamp Tax ("Guarantees for a period of less than one year – for each month or fraction") on the total guaranteed amount of € 326,135,577.05 and, on 18-11-2015, they assessed Stamp Tax in the amount of € 652,271.15 with the Tax Service of Lisbon-….

4.9. Subsequently the Claimants found that, by oversight, they had assessed Stamp Tax in excess, because this tax should only apply to the part of the guaranteed amount relating to selling companies with registered office in the national territory.

4.10. Of the seven selling companies five have their registered office in Portugal, namely: F…, Ltd.; G…– Venture Capital Company, S.A. (representing H…– Venture Capital Fund); I… SGPS, S.A.; J…, S.A.; and K…, SGPS, Single-Member Company, Ltd.. The remaining two selling companies (L… S.à.r.l. and E…, S.à.r.l.) have their registered office in Luxembourg.

4.11. The five companies with registered office in the national territory held a stake of 32.92% in the capital stock of D…, therefore, the Claimants should have assessed Stamp Tax only in the amount of € 214,727.66.

4.12. In these terms, the Claimants assessed and paid to the State Treasury tax in excess in the amount of € 437,543.49.

4.13. The Claimants submitted, on 01-02-2016, an Administrative Complaint with the Tax Service Lisbon-… against the tax assessment acts of Stamp Tax nos. … and …. The presumption of implicit dismissal occurred on 01-06-2016.

4.14. The assessment of Stamp Tax on the guarantee provided by the Claimants is partially illegal due to violation of the principle of territoriality, contained in article 4, no. 2, subsection b), of the Stamp Tax Code.

4.15. The Letter of Comfort issued by the Claimants to the Selling Companies is subject to Stamp Tax, in accordance with item 10 of the General Table of Stamp Tax.

4.16. With respect to the provision of guarantees there are three situations in which Stamp Tax applies:

(i) The entity providing the guarantee and the beneficiary entity both have domicile in Portugal;

(ii) The entity providing the guarantee has domicile in Portugal and the beneficiary entity has domicile abroad, provided that the guarantee is provided in the national territory; and

(iii) The entity providing the guarantee has domicile abroad and the beneficiary entity of the guarantee has domicile in the national territory.

In the present case we are outside the scope of subsections (i) and (ii) because the guarantee is provided by entities with domicile abroad (these are two guarantors resident in Hong Kong). We are also not entirely within the scope of subsection (iii), mentioned above, because not all beneficiary entities (the Selling Companies of D…) have domicile in the national territory.

4.17. The element of territorial connection is not verified for companies E… S.à.r.l. and L…, S.à.r.l., since both have their registered office in Luxembourg.

4.18. The element of territorial connection provided for in no. 2 of article 4 of the Stamp Tax Code is verified for the five companies registered in the national territory to which the guarantee was provided, namely: F…, Ltd.; G…– Venture Capital Company, S.A. (representing H…– Venture Capital Fund); I… SGPS, S.A.; J…, S.A. and K…, SGPS, Single-Member Company, Ltd.

4.19. From this it follows that Stamp Tax applies only to the guarantee relating to the Selling Companies with residence in the national territory.

4.20. Now, considering that a significant part of the guarantee concerns selling companies located outside the national territory (E… S.à.r.l. and L…, S.à.r.l.) it is believed to be clearly evident the fact that the Claimants made an error when they proceeded with the assessment of Stamp Tax arising from the issuance of the Letter of Comfort, because there is no element of connection with the Portuguese territory in those two cases.

4.21. The Tribunal should determine the annulment of the part of the Stamp Tax assessment (in the amount of € 437,543.49) corresponding to the value guaranteed by the Claimants in favor of the Selling Companies registered outside the national territory, namely the companies E… S.à.r.l. and L…, S.à.r.l..

4.22. Indeed, the assessment of Stamp Tax in the terms referred to violates the principles of justice, equality and proportionality, enshrined in the CRP and in the LGT.

4.23. A guarantee provided by non-resident entities in favor of other non-resident entities cannot be subject to Stamp Tax under penalty of violating the constitutional principles of tax capacity, justice, benefit, equality and proportionality.

4.24. Being non-resident part of the recipients (and the corresponding economic and financial interests) of the Letter of Comfort, who intended to see the part of the acquisition price of D… that they were entitled to receive guaranteed, these entities cannot be "participating in the coverage of public charges".

4.25. The application of the provision in article 4, no. 2, subsection b), of the Stamp Tax Code combined with item 10 of the General Table of Stamp Tax, if it determined the subjection to this tax of the part of the guaranteed value relating to the patrimonial and financial interests of the selling companies not resident in the national territory would always entail an excess of taxation contrary to the CRP.

4.26. Thus, one cannot fail to understand that one is dealing with an unlawful act (albeit only in part) in light of the principles of justice, equality and proportionality in the distribution of public charges and which are the corollary of the principles of justice, necessity and equality, generically stated in articles 13 and 18, no. 2, of the CRP and inherent in the principle of the Democratic Rule of Law State.

1. The Respondent submitted its Reply and subsequently attached the Administrative File. In the said reply it invoked, in summary, the following:

5.1. According to the Administrative File, the Claimant B… presents an address on Avenue …, no. …, associated with the tax service of Oeiras… – Algés. It additionally presents, as its tax representative the company C…, Single-Member Limited Company, with domicile on Street …, no. …, Floor …, …-…, …–….

5.2. The same applies to Claimant A… which indicates Portugal as its country of residence.

5.3. As for the requirement that requires residence in Portuguese territory of the guarantor companies (that is, those providing the guarantee), it is entirely fulfilled.

5.4. As for the requirement that the two guaranteed companies (in favor of whom the guarantee is provided) do not have domicile in Portuguese territory, the same is also met, since, as is alleged and appears to be documented proven, both the company E… SARL and the company L… SARL have their respective domiciles in Luxembourg.

5.5. Finally, as to the third requirement, that of the provision of the guarantee itself in the national territory, it should be said that this is also verified in the present case, given that it connects directly with the underlying legal transaction and whose fulfillment of the values involved it seeks to ensure.

5.6. It being noted that this connection with the business in question at some point collides with the atypical and autonomous nature of the comfort letter and this, although the said guarantee instrument does not know in the national legal order a legal regulation by which it can be governed.

5.7. The contract for the purchase and sale of shares of D…, SA, was concluded in Portuguese territory, more specifically in Lisbon, and the object transacted there relates to shares of capital of a company domiciled in Portuguese territory.

5.8. The shares of the capital stock of a company domiciled in Portuguese territory (D…, SA.) are acquired by another company, C…, Single-Member, LDA, also domiciled in Portuguese territory.

5.9. Thus, there is no doubt that the provision of the guarantee, along with the transaction that helped to sustain it, took place in Portuguese territory.

5.10. The tax fact that generates the obligation to assess and pay the corresponding tax, or rather, the comfort letter, although it was provided in Hong Kong, was issued on 2 October 2015, contemporaneous with the contract for the purchase and sale of shares, and served to ensure a contract concluded in Portuguese territory, specifically in Lisbon.

5.11. In accordance with the provision in article 13 of the LGT, tax provisions apply to facts that occur in the national territory, by which the legislator intended to signify that it is the tax fact itself and not so much any other element of connection of the Portuguese tax legal relationship that should be situated in Portuguese territory.

5.12. And let it not be argued that because the comfort letter was issued in Hong Kong, by the now Claimants in favor of two (of the seven) companies located in Luxembourg, relating to a transaction completed in Portugal, whose object relates to shares of a Portuguese company, this in itself precludes the incidence of the tax.

5.13. There is, above all, a need to consider the substance of the transaction, to understand what the said guarantee refers to, on what transaction it is provided, by what entity it responds and also the reason why it was (or is) required from the now Claimants.

5.14. Now the tax fact in question occurred entirely in Portugal, both with the Selling Companies with domicile in the national territory and with the Selling Companies that have domicile in Luxembourg, therefore its respective taxation could only take place in one jurisdiction: here, in Portugal.

5.15. Furthermore, the Claimants do not provide proof of the actual structure of D…, SA, the AT not knowing whether, in fact, the company E… SARL and L… SARL acquired the shares of the said company in the proportion indicated.

5.16. The AT not knowing the shareholder structure prior to D…, SA and not knowing the exact proportion of ownership of the respective percentages in the capital stock, could never grant a request for tax reimbursement, under penalty of improperly reimbursing amounts which by right should (and are) in the coffers of the public treasury.

5.17. Under penalty of, if not done so, running the high risk of violating the principle that dictates the unavailability of tax credits.

5.18. In accordance with the above alleged, documents no. 5 attached with the request for arbitral determination are contested, in accordance with article 446 of the CPC, as to its legal effect, because it is not capable of proving that, at the time of the sale of shares, E… SARL held 32,350 shares and L… SARL held 1,190 shares.

5.19. The said document amounts to merely a sheet of records, which does not identify the company whose shares are discriminated there, and it can even be conjectured – hypothetically speaking – that it is a document fabricated for these precise proceedings. Or, even perhaps, concern another company, in which those companies also had a stake, but which, by not coinciding with D…, is foreign to the present case.

5.20. For this due effect, that is, in order to prove the holding of shares, the Securities Code provides, in its article 78, the possibility for shareholders of a company to request from the registering entity – which has duties of registration and deposit of financial instruments – a registration certificate that will prove, precisely, the existence of the registration of the ownership of the securities to which it pertains and of the rights of usufruct, pledge and any other legal situations that it specifies, with reference to the date on which it was issued or by the period mentioned therein. Which, absent better opinion, was not presented, when it should have been.

5.21. In accordance with article 74 of the LGT, according to the distribution of the burden of proof, whoever invokes a certain right is the one who has the burden of proving it, belonging, in this case, the said burden to the Claimants here. Which they did not do.

5.22. All things considered and weighed, because the tax assessment acts now challenged do not merit censure, they should be kept intact in the legal order.

5.23. The now Claimants present 8 documents, some of which (documents nos. 2, 3 and 4) are drafted in the English language.

5.24. Considering the provision in articles 133, no. 1 and 134, no. 1 of the CPC it is already requested that the Claimants be ordered to attach new documentation, this time in the Portuguese language, not waiving the period of review of 10 days, in accordance with article 446, by referral to article 444, both of the CPC, which will be counted from the date of notification to the Respondent here.

1. The Arbitral Tribunal, by order of 09-01-2017, granted the request of the Respondent, contained in the Reply, for translation into the Portuguese language of documents nos. 2, 3 and 4 attached with the request for arbitral determination and granted the Claimants a period of 15 days to proceed with the attachment to the case file of the translation, into Portuguese language, of the documents identified above.

2. Notified of the order identified in the previous item, the Claimants, on 20-01-2017, requested from the Arbitral Tribunal the following:

(i) Exemption from translation of the second part of document no. 2, attached with the request for arbitral determination, more specifically clause 7 (Leakages) up to clause 26 (Appointment of process agent) as well as Schedule (A) by manifest uselessness to the case file;

(ii) A period to pronounce on the challenge of the factual matter contained in the Respondent's Reply or, alternatively, that the meeting of article 18 of the LFTA be scheduled.

1. The Respondent, notified of the request submitted by the Claimants, identified in the previous item, pronounced itself, on 31-01-2017, for the dismissal of what was requested by the Claimants, in the part in which they request a period to pronounce themselves on the challenge of the factual matter contained in the Reply and in the part in which, as an alternative to the previous request, but with equal purpose, they request the scheduling of the meeting of article 18 of the LFTA.

2. By order of 04-02-2017, the Arbitral Tribunal dismissed what was requested by the Claimants, on 19-01-2017, with the following grounds: (i) The non-attachment by the claimants of the translation of the entirety of the document in question will lead to the Tribunal not considering it for purposes of decision, pronouncing itself, in the award to be issued, based on the remaining evidence available in the case file; (ii) No matter of exception having been alleged by the Claimant, there is no place for the exercise of the adversarial principle as to the matter of challenge of the factual matter by the Claimant. In addition, the meeting provided for in article 18 of the LFTA is not intended to achieve the purpose sought by the Claimant.

3. On 16-02-2017, the Arbitral Tribunal dispensed with the holding of the meeting provided for in article 18 of the LFTA, as no matter of exception had been invoked and there was no place for the production of evidence constitutive of proof, which it did in accordance with the principles of the Tribunal's autonomy in the conduct of proceedings, and in order to promote the speed, simplification and informality thereof (see articles 19, no. 2 and 29, no. 2 of the LFTA). The Tribunal further set 19-05-2017 as the deadline for the issuance of the arbitral decision, which was extended, by order of 14 May 2017, to 18 July 2017.

4. The Claimants, on 21-02-2017, submitted for attachment to the case file, the duly certified translations of the documents identified in the request for arbitral determination with nos. 2, 3, 4, 7 and 8.

5. On 21-02-2017, the Arbitral Tribunal notified the Respondent to exercise the adversarial principle within a period of 5 days, regarding the documents attached by the Claimants on that same day.

6. The Claimants, on 23-02-2017, requested clarification from the Arbitral Tribunal regarding the deadlines for submitting the allegations contained in the order of the Arbitral Tribunal, of 16-02-2017.

7. By order of 27-02-2017, the Arbitral Tribunal clarified that, although the deadline set for allegations is 15 days and not 10 days, as erroneously contained in the request of the Claimants, that deadline begins to run from the end of the 5-day period granted to AT, by order of 21-02-2017, thus respecting the principle of the adversarial procedure.

8. The Claimants submitted, on 22-03-2017, the allegations reiterating the arguments presented in the request for arbitral determination and requested the attachment of the following documents:

Document no. 1: Requests for inscription of legal entities submitted by the Claimants with the IRN, documentation attached for purposes of the issuance of the Certificate of Identification of Equivalent Foreign Entity and obtaining of NIPC, namely the Business Registration Certificates issued by the tax administration of Hong Kong.

Document no. 2: Copy of all securities representing the capital stock of D...

Document no. 3: Declaration form 4 of the acquisition of D… by C...

Document no. 4: Certified copy of the book of records of D….

1. The Respondent, after being notified of the allegations of the Claimants, requested, on 28-03-2017, that the four documents attached by the Claimants in the allegations be, in accordance with the provision in article 443 of the CPC, withdrawn from the case file because they do not contribute to the proper decision of the present case, which was granted by order of 7 May 2017.

2. On 18-04-2017 the Respondent submitted the allegations reiterating the arguments presented in the previous procedural documents.

II. CLEANSING OF PROCEDURAL DEFECTS

1. The parties have personality and capacity to sue, show themselves to be legitimately interested and are regularly represented (articles 4 and 10, no. 2, of the LFTA and article 1 of Ordinance no. 112-A/2011, of 22 March).

The tribunal is competent and is regularly constituted.

The case file does not suffer from any nullities.

No exceptions were raised.

There are no other circumstances that prevent the tribunal from deciding the merits of the case.

III. MERITS

III.1. Factual Matter

1. Proven Facts

19.1. With relevance for the assessment and decision of the issues raised the following facts are established and proven:

a) The Claimant A…, legal entity no. …, appears in the System for Management and Registration of Taxpayers – Current Tax Registration Situation, as "NON-RESIDENT WITHOUT PERMANENT ESTABLISHMENT", with registered office at …, … (as per document at pages 112 and 113 of the Administrative File).

b) The Claimant B…, legal entity no. …, appears in the System for Management and Registration of Taxpayers – Current Tax Registration Situation, as "NON-RESIDENT WITHOUT PERMANENT ESTABLISHMENT" (as per document at page 105 of the Administrative File).

c) C…, Single-Member Limited Company, legal entity no. …, has its registered office and tax domicile in Portugal, on Street … no. …, floor …, …-… …– … (as per documents at pages 107 and 136 of the Administrative File).

d) D… S.A., legal entity no. …, has its registered office in Portugal (as per document at page 140 of the Administrative File).

e) The Claimants, identified above, hold indirectly, in equal parts, the entire capital stock of C…, Single-Member Limited Company, and through this company agreed to the acquisition of the entire capital stock of the company D… S.A. having concluded with seven companies, on 02-10-2015, a contract for the purchase and sale of shares called "Share Sale and Purchase Agreement" (as referred to in Document no. 2 attached to the request for arbitral determination).

f) Of the seven companies holding the entire capital stock of D… S.A., identified in the previous subsection, five have their registered office in Portugal, namely: F…, Ltd.; G…– Venture Capital Company, S.A. (representing H…– Venture Capital Fund); I… SGPS, S.A.; J…–…, S.A.; K…, SGPS, Single-Member Company, Ltd.. The remaining two companies, E…, S.à.r.l. and L… S.à.r.l., have their registered office outside the national territory.

g) E…, S.à.r.l., has its registered office in Luxembourg as per Certificate of Residence issued by the "Administration des contributions directes. Bureau d`imposition Sociétés 6", of Luxembourg, on 1 June 2015 (which is part of Document no. 7 attached to the request for arbitral determination).

h) L… S.à.r.l. has its registered office in Luxembourg as per Certificate of Residence issued by the "Administration des contributions directes. Bureau d`imposition Sociétés 6", of Luxembourg, on 28 January 2016 (which is part of Document no. 8 attached to the request for arbitral determination).

i) The contract for the purchase and sale of shares, identified in subsection e), was associated with a Letter of Comfort, which was issued on 02-10-2015, and served, for a maximum period of 5 months, as a guarantee of payment of the price in the total value of € 326,135,577.05 which assured the following items:

| Acquisition of Shares | € 138,391,827.71 |
| Acquisition of Supplementary Contributions | € 24,057,250.00 |
| Acquisition of Supplies | € 124,887,674.12 |
| Payment of Junior Obligations | € 33,290,701.00 |
| Deferred Completion Amount | € 5,508,124.22 |
| TOTAL GUARANTEED | € 326,135,577.05 |

(as referred to in Documents nos. 3 and 4 attached to the request for arbitral determination).

j) The transaction was completed on 18-11-2015 for the amount of € 320,656,012.80 and the Claimants proceeded with the assessment of Stamp Tax with the Tax Service of Lisbon-…, having been issued two payment slips in the total amount of € 652,271.15. Payment slip no. … directed to B…, in the amount of € 326,135.52 and payment slip no. … directed to A…, in the amount of € 326,135.52, and (as referred to in Documents nos. 1 and 2 attached to the request for arbitral determination).

k) The Claimants submitted, on 01-02-2016, an Administrative Complaint with the Tax Service Lisbon-… against the tax assessment acts of Stamp Tax nos. … and … (as referred to in Document no. 6 attached to the request for arbitral determination and at pages 3 to 118 of the Administrative File).

19.2. Substantiation of Factual Matter

With respect to the proven factual matter, the conviction of the Arbitral Tribunal was based on the free assessment of the positions assumed by the Parties (on matters of fact) and on the tenor of the documents attached to the case file, not contested by the Parties, as well as on the analysis of the administrative file sent by the Respondent.

19.3. There are no other facts with relevance for assessment of the merits of the case that have not been proven.

III.2. Legal Matter

III.2.1. The central question to be decided consists in determining whether the assessments challenged nos. … and …, relating to stamp tax assessed with reference to guarantees provided in favor of two non-resident companies, on a transaction also carried out by non-residents, should be partially annulled for violating: i) the principle of territoriality contained in article 4, no. 2, subsection b) of the Stamp Tax Code; ii) the principles of justice, equality and proportionality, enshrined in the CRP and in the LGT.

The said provision has the following content:

"1- Notwithstanding the provisions of this Code and the General Table to the contrary, stamp tax applies to all facts referred to in article 1 occurring in Portugal.

2- The following are also subject to tax:

a) (…)

b) Credit operations conducted and guarantees provided by credit institutions, by financial companies or by any other entities, regardless of their nature, registered abroad, by branches or foreign branches of credit institutions, financial companies, or any other entities, registered in national territory, to any entities, regardless of their nature, domiciled in this territory, considering domicile to be the registered office, branch, subbranch or permanent establishment;"

Let us examine this.

In the present case, it was proven that two of the companies in favor of which the guarantee was provided are taxed in a foreign country as results from the declarations which constitute documents nos. 7 and 8 of the evidence attached to the PI, which were not contested by the Respondent. On the other hand, it emerges from the taxpayer register itself in the possession of AT, with copies of the System for Management and Registration of Taxpayers, also attached to the case file, that the two Claimants in question are non-residents without permanent establishment.

The first question to resolve is that of defining whether the claimant companies are or are not domiciled in the national territory, according to the definition of art. 4 of the CIS.

It is known that the control of the legal classification of taxpayers for tax purposes, namely, and as interests us, of legal entities, was the responsibility of DGCI for several years, but this competence was legally transferred, including for tax purposes, to the National Register of Legal Entities (RNPC). Various decrees governed this matter until the publication in the Official Journal of Decree-Law no. 129/98, of 13/05, which approved the current regime of the National Register of Legal Entities (RNPC), with the subsequent amendments introduced by Decree-Law no. 12/2001, of 25/01, by Decree-Law no. 323/2001, of 17/12, by Decree-Law no. 2/2005, of 04/01, by Decree-Law no. 111/2005, of 08/07, with Correction no. 6/2005, of 17/02, by Decree-Law no. 76-A/2006, of 29/03, by Decree-Law no. 125/2006, of 29/06, Decree-Law no. 8/2007, of 17/01, by Decree-Law no. 247-B/2008, of 30/12, by Decree-Law no. 122/2009, of 21/05, by Law no. 29/2009, of 29/06, by Decree-Law no. 250/2012, of 23/11 and by Decree-Law no. 201/2015, of 17/09.

In this new regime, the RNPC has the function of organizing and managing the central file of legal entities, as well as assessing the admissibility of business names and denominations.

For the study of the matter of these proceedings it is relevant to cite article 13 of this Decree-Law no. 129/98, of 13 May, which states:

Article 13

Identification Number

1 - Each entity registered in the FCPC is assigned its own identification number, designated as legal entity identification number (NIPC).

2 - The NIPC is a sequential number of nine digits, varying the first digit from the left between the numerals 5 and 9, excluding the numeral 7.

3 - The assignment of the first digit from the left is made in accordance with a table approved by ordinance of the Minister of Justice.

It is therefore within the competence of the Ministry of Justice, through the RNPC, to assign the number of registration of legal entity and it is also its responsibility, in accordance with no. 3 of this article, the definition of the composition of the registration number according to the rules for assigning some significant digits. And the law also incumbs the RNPC to define the legal nature of the entities subject to registration.

Therefore, each entity registered in the FCPC is assigned its own identification number, designated by legal entity identification number (NIPC), which is a sequential number of nine digits, varying the first digit from the left between the numerals 5 and 9, excluding the numeral 7. This is what results from no. 1 of art. 10 of Decree-law no. 326/78, cited above: "The identification number of legal entities and equivalent entities is a sequential number whose first digit must be different for legal entities and for equivalent entities, and the last digit is a control digit for the accuracy of the number".

The legal regulation of the method of fixing the order of the first digits that make up the identification number of legal entities was being fixed in various Ordinances, being the regime currently in force that which appears in Ordinance no. 858/81, of 26 September, which determines:

1st To the organisms of the central administration registered in the FCPC and Equivalent Entities are assigned numerical sequences starting with digits 60 to 65;

2nd To the organisms of the regional administration registered in the FCPC and Equivalent Entities are assigned numerical sequences starting with digits 671, in the case of belonging to the Autonomous Region of Madeira, and 672, in the case of belonging to the Autonomous Region of the Azores.

3rd To the organisms of local administration registered in the FCPC and Equivalent Entities are assigned numerical sequences starting with digits 68 and 69. 4th To entities equivalent to legal entities with registered office abroad registered in the FCPC and Equivalent Entities are assigned numerical sequences starting with digits 98.

4th To entities equivalent to legal entities with registered office abroad registered in the FCPC and Equivalent Entities are assigned numerical sequences starting with digits 98.

In this way it is clear, from reading these legal instruments, that it is to the Ministry of Justice that it falls, along with the registration of legal entities, the assignment of the identification number which should also be used for tax purposes, it being certain that AT when creating the legal entity in its register must do so assuming all the legal characteristics that appear in the registration of the RNPC without any modification. In fact, AT is prevented from carrying out the classification of the legal nature of the taxpayer and must assume in their entirety the elements of a personal nature that have been validated in the registration act. And so much is it so that the Circular Office no. 1006, of 21/09/2000, from the Directorate of Tax Register Services on "Single Register – Entry into Production – New Taxpayer Card" states immediately in its preamble: "With the publication of Ordinance no. 862/99, of 8 October, and without prejudice to some adjustments that may yet be made, the normative framework within which the entire process of tax registration and the issuance of the taxpayer card will function is completed, which, also for legal entities, will become an assignment of the DGCI.

It should be noted that, on this matter and in addition to the addition made to the VAT Code (art. 34-A) by Law no. 87-B, of 31.12.98, had already been published, Decree-Law no. 19/97, of 21 January, Ordinance no. 386/98, of 3 July and Ordinance no. 271/99, of 13 April, decrees that are entirely compatible with the provisions contained in Decree-Law no. 129/98, of 13 May, where the legal framework for the registration of legal entities under the responsibility of the General Directorate of Registries and Notaries, of the Ministry of Justice is defined."

With relevance in the matter we can further read in the Circular Office the following:

2.2. Legal entities

The assignment of the tax identification number to legal entities required to register will continue to be the responsibility of the Ministry of Justice, as results from Decree-Law no. 129/98, of 13 May, maintaining that number the structure that, until now, has been used.

…."

All to conclude that the elements that appear in the register as to the personal nature of the taxpayers must be those that are provided by the RNPC (nowadays automatically and by computer means). They are, therefore, information with the registral nature that is conferred by law and that benefit from the effects of the registered acts that are opposable to third parties.

AT cannot proceed with modifications to the elements that appear in the mandatory register, even for tax purposes, unless it itself (see no. 9 of art. 19 of the LGT) obtains information that leads to altering or disregarding the registral information provided by the RNPC when carrying out a registration of a legal entity. Such information will be classified for tax purposes according to the registration number assigned to it, and one of the elements of that registration is precisely the number consisting of nine numerals, three of which are significant: the first two and the last, which is the numeral called checkdigit or control number to prevent falsification of the NIPC.

Thus, AT does not have the legal power to fail to register as legal entities with registered office abroad, entities to which a registration number starting with 98 has been assigned, in terms of Ordinance no. 858/84, of 26 September.

From official records it results that Claimant A…, which provided a guarantee in Portugal, has the legal entity identification number no. …, and which appears in the System for Management and Registration of Taxpayers – Current Tax Registration Situation, as "NON-RESIDENT WITHOUT PERMANENT ESTABLISHMENT", with registered office at …, … (as per document at pages 112 and 113 of the Administrative File).

Similarly, it appears from the elements attached to the administrative file that claimant B…, also has registered office in Hong Kong and is a legal entity with no. …, which appears in the System for Management and Registration of Taxpayers – Current Tax Registration Situation, as "NON-RESIDENT WITHOUT PERMANENT ESTABLISHMENT" (as per document at page 105 of the Administrative File).

In light of the foregoing, this is the relevant tax register information for tax purposes since AT does not invoke in its favor the knowledge of the exercise of any tax activity or the obtaining of income subject to tax by the claimants that, ex officio, could justify the alteration of this tax characterization to become, despite the registration of the RNPC, a resident taxpayer or with permanent establishment for tax purposes.

The information enumerated in the Reply as being relevant to prove that we are dealing with resident taxpayers, such as the indication of an address in national territory, in fact are not so because, on the one hand, they may certainly refer to the contact addresses of their respective legal representatives, besides which it is not the fact that they may have a representation in national territory that confers on them the status of resident; and, on the other hand, all such information also came from the RNPC but was not important so that a registration number starting with 98 could not be assigned nor that, in the very form extracted from the tax register, the notation "Legal Nature: Non-resident without permanent establishment" could cease to appear (see copies of the information extracted from the System for Management of Taxpayer Registration from AT in February 2014, contained at page 105 to page 119 of the P.A.).

Which means that the legal entities in question are indeed non-residents according to the national register of legal entities, and it is not proven that they are domiciled in national territory, requirement of subsection b) of no. 2 of art. 4 of the CIS, since AT does not present suitable elements relating to the existence of registered office, branch, subbranch or permanent establishment imputable to the two companies with residence in Hong Kong that provided the guarantee.

In this way the allegation that the requirement that the claimants are domiciled in national territory is met is unfounded.

On the other hand, it is proven that the beneficiary companies of the guarantee provided by the claimants have registered office abroad, in Luxembourg, according to documents attached to the case file and which AT does not contest.

Another element of the type of the rule of incidence has to do with the fact that the guarantee provided must be in national territory, and on this there is also no doubt. The main tax fact is the provision of a guarantee which, in accordance with art. 10 of the General Table of Stamp Tax is subject to taxation at the rate of 0.04% on the respective value, for the case of being provided for a period of less than 1 year. However, this general rule has some conditions related to the principle of territoriality provided for in art. 4 of the Stamp Tax Code and which contribute to or preclude the incidence, whereby it is determined that there is no taxation on tax facts occurring in national territory whenever the beneficiaries of the provision of guarantee are not domiciled in national territory, considering domicile to be the registered office, branch, subbranch or permanent establishment.

In the case file it was proven that two of the beneficiary companies of the guarantee provided were resident in Luxembourg and that the guarantee, although considered to be provided in national territory, was provided by two entities with registered office abroad.

On the other hand, from careful reading of no. 2 of art. 4 of the CIS, we extract nothing that respects the nature of the underlying transaction or act to the provision of guarantee. No. 1 only refers to tax on stamp tax of facts referred to in art. 1 that occur in national territory. The law does not enumerate or provide any condition in the rule of incidence that respects the nature of the transaction. What is at issue in the incidence is the existence or not of a guarantee and it is the fact of whether or not the beneficiary has residence or registered office in national territory. What the law defines and enumerates are credit operations and/or guarantees provided, "regardless of their nature" (see subsection b) of no. 2 of art. 4 of the CIS).

This conclusion can result, moreover, from the Stamp Tax Code itself, if we rely on a systematic interpretation, because in the seat of this tax, according to the rules of incidence, in the majority of tax facts provided for there is no assumption of any concern with subjective or objective elements, but it merely limits itself to taxing papers, acts, contracts, documents, titles and other facts or legal situations that are provided for in the Code (see art. 1).

For all this, it is considered to lack legal basis the attempt to condition taxation through the characteristics of the owners of the capital when the law indicates no clue about elements of a subjective nature of the capital owners. This requirement or presumption is not contained in the rule of incidence resulting from no. 2, subsection b), of art. 4 of the CIS, nor from the enumeration of Item 10 of the GTST, therefore it lacks legal support for the introduction of this argument.

Finally, AT also invokes in its defense the lack of knowledge of the "prior shareholder structure of D…, SA and unknown knowledge of the exact proportion of ownership of the respective percentages in the capital stock, could never the Respondent grant a request for tax reimbursement, under penalty of improperly reimbursing amounts which by right were (and are) in the coffers of the public treasury".

Beyond this generic statement, AT presented no other argument in support of this thesis, and here too it is not in the right.

AT did not condition the payment of Stamp Tax to the proof of any requirements of a personal nature, and that same AT has knowledge of who alleges to have made the improper payment and recognized legitimacy to do so. If, in the case, AT knows the entities that bore the burden of the taxation, and which in accordance with subsection e) of no. 3 of art. 3 of the CIS, are the entities obliged to provide the guarantee and now are the same entities who come to request the respective return, it does not seem correct to be calling into question the legitimacy of the claimants to request the annulment of the assessments because they are the taxpayers of the tax. The issue is not, therefore, the recognition of any illegitimacy of the claimants, but solely the verification of the legality of the act that gave rise to the taxation.

In conclusion, and without need for analysis of other grounds, the tribunal understands that the illegality of the assessments nos. … and …, in the total amount of € 437,543.49, relating to stamp tax of 2014, which were made regarding the provision of a guarantee in favor of E… SARL and L… SARL, is proven, because the rule of incidence relating to territoriality referred to in subsection b) of no. 2 of art. 4 of the Stamp Tax Code is not fully verified, since the Claimants who provided the guarantee are registered abroad and the two beneficiaries of the guarantees provided are not domiciled in national territory since they have here neither registered office, nor any branch, subbranch or permanent establishment.

In these terms the arbitral request is held to be meritorious, with the consequent partial annulment of the Stamp Tax assessment acts mentioned, determining, consequently, the reimbursement of tax improperly assessed and paid in excess.

III.2.2. Proceeding with the request for arbitral determination based on the vice of illegality due to error of law as to the meaning and scope of article 4, no. 2, subsection b), of the Stamp Tax Code, which assures effective and stable protection of the rights of the Claimants, the knowledge of the other vices that are imputed to the tax assessment acts in question is prejudiced.

In fact, it follows from the establishment of an order of knowledge of vices, in article 124 of the CPPT, that judged as meritorious a vice that precludes the renewal of the impugned act, there is no need to assess the others that are imputed to it. If it were always necessary to know of all vices it would be indifferent the order in which their knowledge would be made.

IV. DECISION

In these terms the present Tribunal agrees to hold the arbitral request to be meritorious, determining the partial annulment of the Stamp Tax assessment acts identified above, with the consequent reimbursement of the amounts improperly assessed and paid.

V. VALUE OF THE CASE

In accordance with the provision in articles 306, no. 2, and art. 297, no. 2, of the C.P.C., of art. 97-A, no. 1, subsection a), of the C.P.P.T., and of art. 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 437,543.49.

VI. COSTS

In accordance with the provision in articles 22, no. 4, and 12, no. 2, of the Legal Framework for Arbitration, in article 2, in no. 1 of article 3 and in nos. 1 to 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, as well as in Table I attached to this decree, the total value of costs is fixed at € 7,038.00, charged to AT.

Let it be notified.

Lisbon, 30 June 2017

The Arbitrator-President

Fernanda Maçãs

The Arbitrator Member

José Ramos Alexandre

The Arbitrator Member

Olívio Mota Amador

Text drawn up by computer, in accordance with the provision in article 131, no. 5, of the CPC, applicable by referral of article 29, no. 1, subsection e), of the LFTA.