Summary
Full Decision
ARBITRAL DECISION
I – Report
1. A…, S. A., with tax identification number …, with registered office at …, no. …, in Lisbon, submitted a request for the establishment of an arbitral tribunal, pursuant to Articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax act for the assessment of stamp duty, with reference to the year 2014, in the amount of € 3,498,821.22, as well as the assessment of compensatory interest in the amount of € 332,386.47, and further requesting a judgment for compensation for undue provision of security in accordance with Articles 53 of the LGT and 171 of the CPPT.
It alleges, in summary, that it entered into, on 1 September 2009, a contract called a financial agreement with B…, SGPS, S. A. (B…) and C…, SGPS, S. A. (C…), whereby it was stipulated that the Claimant granted to B… and C… a credit line up to a maximum amount of €1,000,000 (which included amounts of credit financed on a prior date) which would be made available until 31 December 2017 and amounts which came to be utilized would be fully reimbursed by 31 December 2019.
It was further agreed that amounts of credit utilized could be reimbursed partially or fully before the fixed deadline, reimbursements which came to occur, in various amounts, during the years 2010, 2011, 2012, 2013 and 2014.
Following an inspection action concerning the year 2014, the Tax Administration proceeded to assess the stamp duty owed by the Claimant in relation to credit operations carried out in favor of B… and C…, by applying the rate provided for in item 17.1.4 of the General Stamp Duty Table (TGIS), taking into account that the credits in question were granted for an indefinite or indeterminable period.
However, the credits were granted for a certain and determined period, which was fixed on 31 December 2019, the date on which performance of the obligation became due, and the contractually foreseen possibility of early reimbursement could not mean that the financing would cease to be dependent on a time period.
And, thus, the provision of item 17.1.4 of the TGIS is not applicable to the case since the legislator intended to tax therein the "utilization of credit in the form of current account, bank overdraft or other, with indefinite or indeterminable duration of utilization".
Being that the tax rate that could possibly be considered was that provided for in item 17.1.3 of the TGIS since it applies to credit for a period equal to or greater than five years.
The Tax Authority submitted its response, alleging, in summary, that, for purposes of the incidence of Stamp Duty, what is relevant is the utilization of credit, and not the credit grant contract, and that, being a financing line made available which permits reimbursement of the credit utilized at any time, as long as it does not exceed the deadline of 31 December 2019, the utilization is not determined nor determinable.
The parties did not fix a date for reimbursement of the credits granted and merely stipulated a period until which the loans could be granted (31 December 2017) and a period until which reimbursements could be made (31 December 2019).
And with no certain period for reimbursement, which may occur in the time period between the moment of utilization of the credit and the limit contractually defined for full performance, none of the taxation rules referred to in items 17.1.1 to 17.1.3 are applicable, but only that provided for in item 17.1.4.
The request for establishment of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority in accordance with applicable regulations.
In accordance with the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the signatories hereto, who communicated acceptance of the appointment within the applicable period.
The parties were timely and duly notified of this designation and did not manifest a will to refuse it, in accordance with the combined provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provision of paragraph c) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 20-12-2017.
The arbitral tribunal was regularly constituted and is materially competent, in view of the provisions of Articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties possess legal personality and capacity, are legitimately constituted and are represented (Articles 4 and 10, no. 2, of the same instrument and Article 1 of Order no. 112-A/2011, of 22 March).
The case is not affected by nullities and no exceptions were raised.
2. Following the proceedings, the meeting referred to in Article 18 of the RJAT was waived, as was the production of witness evidence.
In arguments, the Claimant maintained its understanding regarding the inapplicability of item 17.1.4 to the situation of the case and raised ex novo the unconstitutionality of that provision, for violation of the principle of contributory capacity and the principle of tax legality, on the grounds that the Tax Administration carries out a presumptive interpretation and adopts a solution that finds no support in the statutory text.
The Tax Authority maintained its previous position on the substantive issue, and, regarding constitutional issues, contests that the subsumption of the facts to the provision of item 17.1.4 could correspond to a presumptive interpretation of the provision or infringe the principle of tax legality. As to the request for compensation for undue provision of security, the Respondent invokes the decision of the Arbitral Tribunal handed down in Case no. 369/2017-T, which judged an identical request unfounded as it involved the provision of security through a mortgage.
It falls to us to assess and decide.
II - Reasoning
Factual Matter
3. The facts relevant to the decision of the case that may be taken as established are as follows.
A) On 1 September 2009, the Claimant entered into a financial agreement with B… and C… whereby it granted to these two entities a credit line up to a maximum amount of €1,000,000, which would be made available, as needed, until 31 December 2017, and amounts which came to be utilized would be fully reimbursed by 31 December 2019.
B) At the time of execution of the agreement, the Claimant held a credit against B… in the amount of € 641,040,527.86, and a credit against C…, in the amount of € 380,000.00, which came to be considered as utilization of credit made available on that date, for purposes of the agreement.
C) The same financial agreement provided that the entities benefiting from utilization of credit could reimburse, partially or fully, the amounts of credit utilized at any time prior to the deadline of 31 December 2019.
D) The beneficiary entities proceeded with various early reimbursements of the funds utilized.
E) Following an inspection action relating to the year 2014, the Tax Administration carried out a correction of the stamp duty assessment applicable to credit utilization operations by considering that reimbursement of the credit utilized was not dependent on a determined or determinable period and was subject to the application of a rate of 0.04% on the monthly average obtained through the sum of outstanding balances calculated daily during a month, in accordance with item 17.1.4 of the TGIS.
F) The correction of stamp duty assessment was determined in the amount of € 3,498,821.22 to which corresponded compensatory interest in the amount of € 332,386.47.
G) With voluntary payment of the tax debt not having occurred, the finance service instituted against the Claimant a tax execution proceeding for coercive collection of the debt, in the total amount of € 3,831,297.89, to which costs accrue, having proceeded with personal service through communication issued on 18 July 2018.
H) The Claimant, intending to challenge the additional tax assessment, requested suspension of the tax execution proceeding by constituting a mortgage provided by Company D…, S. A. on various autonomous units at a property value of € 4,833,259.15 and the provision of a security deposit in the remaining amount of € 7,836.38.
I) On 14 December 2016, the parties to the financial agreement referred to in the preceding paragraph A), through an interpretive addendum, intended to clarify the meaning of the clauses relating to the period so as to be understood that any and all credit utilized under that agreement was granted for a certain and determined period which begins on the date the credit is made available and ends on 31 December 2019.
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 presented by the Tax Authority with its response.
The factual matter contained in paragraph D) was acknowledged by the Claimant in the initial petition and is not a matter of controversy.
Legal Issue
4. In accordance with the financial agreement entered into between the Claimant and B… and C…, the provision to the second and third contracting parties of a credit line in the maximum amount of €1,000,000 was stipulated, until the end of the civil year 2017, and whose full reimbursement should occur by the end of the civil year 2019. The agreement further contemplated the possibility of amounts of credit utilized coming to be reimbursed by the beneficiaries, partially or fully, before the fixed deadline for performance of the contract.
The question being discussed is whether the early reimbursement clause, having been invoked, renders the period of credit utilization indeterminate or indeterminable for purposes of the incidence of stamp duty, bringing the tax fact within the scope of the provision of item 17.1.4 of the General Stamp Duty Table.
The financial operation in question appears to be characterized as a credit facility, understood as a contract by which one party binds itself to provide the other with the making available of credit up to a certain amount and for a determined time. By effect of the contract, the borrower acquires the right to utilize the credit made available to it as it deems convenient in terms of amount and dates, so it is at the moment when the transfer of financial means through the utilization of credit is verified that the credit relationship is effectuated.
By effect of the changes introduced in the new Stamp Duty Code, the tax-generating fact of the tax obligation came to be the utilization of credit, and not the execution of the contract - as resulted from the previous regime - and, in that sense, the taxable value is now determined as a function of the obtaining of the credit and the period for which it is in effect.
The rule of real incidence of the tax is that of item 17.1 of the TGIS, which taxes the utilization of credit, in the form of funds, goods or other values, on the respective value as a function of the period, always considering as a new grant of credit the extension of the period of the contract.
In the case of contracts with a determined period, the tax will be levied on each of the credit utilizations in accordance with items 17.1.1 to 17.1.3 of the TGIS, with a rate of 0.5% being applicable when the credit is for a period equal to or greater than one year, 0.6% when the credit is for a period equal to or greater than five years, and 0.04 per month when the period is less than one year, with that period corresponding to the lapse of time that occurs between the date of utilization of the credit and the deadline stated in the contract until which the credit is granted.
In those terms, the tax-generating fact of the tax obligation is instantaneous, occurring at a determined moment (credit utilization), and the applicable rate varying as a function of the credit grant period. Thus it is understood that the law classifies the extension of the payment period as a new grant of credit for taxation purposes (item 17.1, second part).
Conversely, in credits utilized in the form of current account, bank overdraft and whenever the period of utilization is not determined or determinable, the tax fact is continuous in nature, making it impossible to apply the mechanism of the extension of the period referred to in item 17.1, which is only relevant when the credit is subject to a certain period. For those cases, item 17.1.4 establishes another criterion for determining the tax, mandating the application of a rate of 0.04% on the monthly average obtained through the sum of outstanding balances calculated daily during a month, divided by 30. The tax levies, in that case, on the balances calculated in each month, being only in that sense that relevance can be attributed to the temporal factor.
This is, moreover, the principle that results from Article 5, paragraph g), of the Stamp Duty Code: in credit operations, the tax obligation is considered as constituted at the moment when they are carried out or, if the credit is utilized in the form of a current account, bank overdraft or any other means in which the period is not determined nor determinable, on the last day of each month.
Thus, the tax becomes due only at the moment when the credit is effectively utilized and is levied on the value of each utilization. The applicable rate is that corresponding to the period that elapses between the moment of utilization and that established for reimbursement, distinguishing, for that purpose, between short-term, medium-term or long-term operations. Whenever, at the moment of utilization, the respective period is not determined or determinable, the tax is assessed at a rate of 0.04 on the monthly average of the debt (on all these aspects, José Maria Fernandes Pires, Lições de Imposto sobre o Património e do Selo, Coimbra, 3rd edition, 2016, pp. 472 et seq.).
5. In the present case, the utilization of credit was granted for a contractually determined period, fixed on 31 December 2019, the moment at which the amounts that have been made available must be fully restored (clause 1.5). What occurs is that the financing agreement contemplates a clause that permits the debtors to advance the reimbursement of the amounts of credit utilized to a moment prior to the fixed deadline (clause 3.2.).
In view of the legal framework outlined, it appears to have been the legislator's intention to fix the tax rate as a function of the effective utilization of credit. The starting point of the period will always correspond to the moment of withdrawal or disbursement and the ending point coincides with the moment when the funds are reimbursed, if a reimbursement plan has been fixed, or, otherwise, with the end of the respective contract.
The doubt that may arise regarding the end point of the period is when there is early reimbursement that may determine a reduction in the period of credit utilization that was initially foreseen, allowing then for discussion as to whether there may be grounds for correction of the assessment that has been carried out.
In the present case, the Tax Authority argues, however, that the financing agreement, by providing a clause for early reimbursement, does not define a specific date for reimbursements inasmuch as these may occur on any date that falls within the time period that elapses between the moment of utilization of the credit and the contractually fixed deadline, and thus there were grounds for assessment of the rate corresponding to a financial operation without a determined or determinable period.
6. Addressing the issue, it must first be said that the early reimbursement clause inscribed in the financing agreement is an accessory clause of the nature of a conditional stipulation, which confers on the debtors a mere faculty of early reimbursement - which may not even have been invoked - and which, prima facie, is reflected in the contractual relationship established between the parties and not in the scope of incidence of the tax.
As has been noted, the rule of incidence of the tax is limited to taxing the credit operation, being at the moment when it is carried out that the tax obligation is considered as constituted and effectiveness is conferred on the tax fact, both for purposes of the exigibility of the tax and for the counting of the period of the right to assess (Article 5, paragraph g) of the CIS).
In general, the applicable rate should correspond to the period that elapses between the moment of withdrawal of the funds made available and the moment when, in accordance with the contract, reimbursement should occur. However, that rule can only be validly implemented, through direct application of the rule of objective incidence, when it is possible to determine beforehand, with precision, the effective period of utilization and it is possible to match the financial movements that represent the disbursement and the respective reimbursement (in this sense, Luis Magalhães, "O Novo Código do Imposto do Selo. Principais reflexos no crédito", in Fisco, no. 88-89, May-June 2008, Year XI, p. 22).
With there remaining a practical difficulty in determining the duration of effective credit utilization, it is natural that the period to be considered will be that which elapses between the disbursement and the period contractually fixed.
It is borne in mind that what is relevant for the incidence of the tax is the effective utilization of the funds and not the credit grant contract that underlies it (see the decision of the arbitral tribunal of 5 November 2014, Case no. 24/2014-T). The fact is that the parties, in the situation of the case, entered into a contract that provides for the full reimbursement of the amounts that have been utilized within a determined period that coincides with the period of expiration of the contract. The possibility of early reimbursement, which is contained in the contract terms, constitutes a mere contingency that cannot have the effect of transforming the certain contractually foreseen period into an indeterminate or indeterminable period.
On the other hand, the early reimbursement clause, when invoked, could not have as its effect the indeterminability of the period of credit utilization, but rather the reduction of the contractually established period, and thus the solution to be adopted, on the tax level, would be to correct the initial assessment through the application of the rate corresponding to the shorter period that was actually applied.
It is patent, in view of all that has been stated, that the rate provided for in item 17.1.4 has its field of application delimited to those other situations in which, by the very terms of the contract, it is not possible to determine a certain moment in which reimbursement will necessarily take place, thus being only justified that the tax, in such cases, be assessed by application of an average rate calculated monthly. The type of rate provided for in item 17.1.4 applies, therefore, when the period of credit utilization is not previously defined and it is not possible to tax by any of the rules established in items 17.1.1 to 17.1.3, which is manifestly not the case in the matter at hand.
In view of the solution reached on the infra-constitutional law level, the assessment of the constitutional questions that were also raised is rendered moot (Article 608, no. 2 of the CPC).
Compensation for Undue Provision of Security
7. The Claimant further requested payment of the corresponding compensation for undue provision of security, invoking the provisions of Articles 171 of the CPPT and 53 of the LGT, having for that purpose alleged and demonstrated that it proceeded to constitute a mortgage in favor of the Tax Authority on various real properties, at a property value of € 4,833,259.15, as well as to the provision of a security deposit in the remaining amount of € 7,836.38, in order to obtain suspension of the tax proceeding in view of challenging the tax act assessing the tax.
Undoubtedly, Article 171 of the CPPT guarantees compensation in case of a bank guarantee or equivalent unduly provided, which may be requested in the proceeding in which the legality of the executable debt is contested, it being understood that the arbitral proceeding is also the proper procedural means to raise this request since it may have as its object the assessment of claims relating to the declaration of legality of acts of assessment of taxes (Article 2, no. 1, paragraph a), of the RJAT).
Article 53 of the LGT further admits that the debtor who offers bank guarantee or equivalent to suspend tax execution will be compensated wholly or partially for losses resulting from its provision, if the debtor has maintained it for a period exceeding three years, except when it is verified in judicial challenge that there was error attributable to the services in the assessment of the tax, in which case the compensation is not dependent on the period for which the security was in effect.
However, as was decided in the decision of the STA of 24 October 2012 (Case no. 0528/12), only bank guarantee, deposit, surety insurance or any other means capable of justifying the existence of expenses that may occur by effect of the passage of time, to which Article 199, no. 1, of the CPPT refers, and which have as their maximum limit the guaranteed value of the rate of compensatory interest (Article 53, no. 3, of the LGT) can be understood as security for the intended compensatory purposes.
This is not the case of voluntary mortgage, which is subject, in principle, only to notarial fees for constitution and registration, and which cannot be understood as security equivalent to any of the forms of security recognized in the aforementioned Article 199 of the CPPT.
Certainly the Claimant also provided a security deposit in the remaining amount of € 7,836.38 to cover the entire value of the executable debt, but did not specify which losses are compensable.
And thus, losses resulting from the provision of a deposit or other losses not immediately quantifiable that may be attributed to the constitution of a mortgage can only be reimbursed in an incident of assessment to be raised separately (in this sense, the decision of the arbitral tribunal of 12 February 2018, Case no. 369/2017-T).
III – Decision
On these terms the arbitral tribunal agrees:
a) To sustain the request for an arbitral ruling and annul stamp duty assessment no. 2017…, in the amount of € 3,498,821.22, as well as the assessment of compensatory interest, in the amount of € 332,386.47, both relating to the year 2014;
b) To dismiss the request for compensation for undue provision of security and, in that respect, to absolve the Tax Authority of the claim.
Value of the Case
The Claimant indicated as the value of the case the amount of € 3,831,207.69, which was not contested by the Respondent, and corresponds to the value of the assessment that was intended to be opposed (Article 97, no. 1, paragraph a), of the CPPT).
Costs
In accordance with the provisions of Articles 12, no. 2, and 24, no. 4, of the RJAT, and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 48,654.00 (forty-eight thousand six hundred and fifty-four euros) which is chargeable to the Respondent.
Notify.
Lisbon, 6 April 2018
The Collective Arbitral Tribunal
Carlos Cadilha
(Presiding Arbitrator)
Marcolino Pisão Pedreiro
(Member Arbitrator)
Nuno Cunha Rodrigues
(Member Arbitrator)
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