Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
The arbitrators, Councillor Carlos Alberto Fernandes Cadilha (arbitrator-president), Jónatas Machado and Marisa Almeida Araújo (arbitrators-members), appointed by the Ethical Council of the Administrative Arbitration Centre (CAAD) to form this Arbitral Court, agree as follows:
I – Report
- A..., hereinafter referred to as the "Claimant", with registered office at Rua ..., No. ..., ...-... Lisbon, holder of the Unique Number of Legal Entity and registered with the Commercial Registry Office ..., representing B... – REAL ESTATE INVESTMENT FUND, hereinafter referred to as the "Fund", with postal identification number ..., hereby requests the constitution of an arbitral tribunal on 05/11/2018, under the provisions of articles 2.º, no. 1, subparagraph a), and 10.º of Decree-Law no. 10/2011, of 20 January, to assess the legality of the decision of tacit dismissal of the Administrative Appeal procedure and the partial annulment of the tax acts relating to Stamp Duty, with the due and legal consequences.
The request is based on the following grounds:
a) The Claimant represents the aforementioned Fund, under the terms of the Management Regulations – attached to the case file –, which is constituted as an open real estate investment fund with accumulation characteristics that commenced its activity on 5 February 2001 following a resolution of the CMVM Executive Board that authorized it on 25 January 2001.
b) In the pursuit of the Fund's objectives and respective activity, the Fund has been resorting to financing from Bank C..., namely – considering the object sub judice – the contract for opening credit by overdraft on account concluded between the Fund and that banking institution, associated with the demand deposit account no. ... .
c) Bank C..., in its capacity as the tax debtor, assessed and paid the Stamp Duty owing with reference to that contract through the respective tax payment slips.
d) The aforementioned Bank passed on the Stamp Duty assessed to the Fund's sphere, as the user of the credits, the latter bearing the entire burden – namely:
e) Nevertheless, the Claimant understands that the assessments do not comply with applicable legislation and that they benefit from the exemption provision enshrined in subparagraph e) of no. 1 of article 7.º of the Stamp Duty Code.
f) Accordingly, the Claimant understands that they are exempt from Stamp Duty – under the terms of the aforementioned provision (ex vi article 1.º and Items 17.1 and 17.3) – since the financial operations are associated with "the provision of credit", the lending entity is qualified as a "credit institution" under the law, and the Fund, in its capacity as borrower, constitutes a "financial institution" as provided for "in the community legislation".
g) Being, precisely in the latter case - financial institutions provided for in community legislation – that the Claimant understands that "real estate investment funds", under Directive 2015/849, in its article 3.º no. 2, defines "financial institution", are included in that concept.
h) The Claimant further raises Directive 2011/61/EU of the European Parliament and Council, of 8 June 2011, on managers of alternative investment funds, which in the respective definition provided for in subparagraph a) of no.1 of article 4.º, concludes the Claimant, that it follows that real estate investment funds – considering their activity and structure – should also be considered as a typology of "alternative investment funds", for the purposes of the Directive.
i) Since, with regard to criterion i), provided for in subparagraph a) of article 4.º of Directive 2011/61/EU, the Fund is constituted by capital from its participants, and the objective is to maximize the value of its net assets through the realization of investments, predominantly real estate, for the benefit thereof.
j) With regard to criterion ii), authorization not having been required thereunder under article 5.º of Directive 2009/65/EC, and the same does not apply to the Fund in question.
k) Concluding thus, the Claimant, that the Fund is a subspecies of "alternative investment fund" and, therefore, for the purposes at hand, must be considered a "financial institution" as provided for in community legislation.
l) And therefore, it should benefit, as the Claimant concludes, from the Stamp Duty exemption enshrined in subparagraph e) of no. 1 of article 7.º of the Stamp Duty Code.
m) The Claimant presented the respective Administrative Appeal on 20 June 2018 which has not, to date, received an express decision. Having, on 21 December 2018, filed the present request for arbitral determination.
n) The Claimant, considering that it understands the aforementioned exemption to be applicable, petitions that the illegality of the dismissal of the Administrative Appeal be declared and the tax acts relating to Stamp Duty be partially annulled, as illegal, for error in the factual and legal assumptions, and consequently, the Claimant be reimbursed of the amounts paid unduly and the Tax Authority be condemned to the respective indemnifying interest (directly to the Fund, in its capacity as third party to whom the burden was passed on).
- The Tax Authority responded, on 9 April 2019, and attached the administrative file, concluding for the inadmissibility of the arbitral request, alleging, summarily, that:
a) The Claimant is constituted as an open real estate investment body, has as its object the activity corresponding to CAE code "64300 - Trusts, funds and similar financial entities" and the secondary exercise of the activity corresponding to CAE "68100 - Purchase and sale of real estate", represented by the Claimant as set out in the Management Regulations, the depositary of its assets and its commercial entity is "Bank C..., S.A." (TAX ID...), having been registered with the Securities Market Commission (CMVM) as a financial intermediary since 29-07-1991.
b) On 20/06/2018, the Claimant submitted an Administrative Appeal with the Tax Authority, aimed at the annulment of the tax acts relating to Stamp Duty in question, referring to item 17 of the GIIT (General Stamp Duty Table), which were assessed by Bank C... S.A., (as the tax debtor), and charged to the Claimant, between June 2016 and February 2018, in the total amount of € 441,884.23, in compliance with the obligation as holder of the economic interest.
c) The Claimant argues that, being a credit contract granted by a credit institution/financial institution, the interest and fees charged relating to such provision of credit to another entity whose form and corporate purpose fulfil the type of financial companies and financial institutions provided for in community legislation, should have applied the exemption established in subparagraph e) of no. 1 of article 7.º of the SDC, invoking the understanding of the Binding Ruling given in the context of process ... - BIN No. ...3, with the concordant order of the Director General of the Tax and Customs Authority, of 07-07-2017.
d) The Respondent agrees that the Tax Authority has understood that real estate investment funds are qualified as a financial institution, under community legislation, and as such will be exempt from Stamp Duty under subparagraph n) of no. 1 of article 7.º of the SDC, with respect to commissions charged when directly intended for the provision of credit within the scope of the activity exercised by the credit institutions referred to therein.
e) But it understands that the Claimant does not prove that we are dealing with Stamp Duty assessed under the terms of the aforementioned exemption provision.
f) The Respondent thus sustains the inadmissibility of the arbitral request.
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Following the proceedings, the Claimant attached two documents to the case, and the Respondent was given the opportunity to comment in the context of submissions. The meeting referred to in article 18.º of the RJAT was not scheduled, as it was deemed unnecessary for the proper resolution of the case. Neither the Claimant nor the Respondent submitted submissions.
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The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the Tax and Customs Authority in accordance with regulatory procedures.
Under the provisions of subparagraph a) of no. 2 of article 6.º and subparagraph b) of no. 1 of article 11.º of the RJAT, in the wording introduced by article 228.° of Law no. 66-B/2012, of 31 December, the Ethical Council appointed as arbitrators the undersigned, who communicated their acceptance of the office within the applicable period.
The parties were duly and timely notified of that appointment and did not manifest the will to challenge it, under the combined provisions of article 11.º, no. 1, subparagraphs a) and b), of the RJAT and articles 6.° and 7.º of the Ethical Code.
Thus, in accordance with the provision in subparagraph c) of no. 1 of article 11.º of the RJAT, in the wording introduced by article 228.° of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 20 December 2018.
The arbitral tribunal was regularly constituted and is materially competent in light of the provisions of articles 2.º, no. 1, subparagraph a), and 30.º, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties have legal standing and capacity, are legitimate and are represented (articles 4.º and 10.º, no. 2, of the same legal instrument and 1.º of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and no exceptions were raised.
It is within the tribunal's purview to consider and decide.
II - Reasoning
Factual Matters
- It is incumbent upon the tribunal to select the facts that matter for the resolution of the case and to discriminate the proven facts from those not proven (in accordance with article 123.º, no. 2, of the CPPT and article 607.º, no. 3 of the CPC, applicable ex vi article 29.º, no. 1, subparagraphs a) and e), of the RJAT).
In this manner, the facts relevant to the judgment of the case are selected and defined according to their legal relevance, which is determined in consideration of the various plausible solutions to the legal issue(s) (in accordance with the former article 511.º, no. 1, of the CPC, corresponding to the current article 596.º, applicable ex vi article 29.º, no. 1, subparagraph e), of the RJAT).
The following facts have been considered proven, with relevance to the decision:
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The Fund was constituted as an open real estate investment body, has as its object the activity corresponding to CAE code "64300 - Trusts, funds and similar financial entities" and the secondary exercise of the activity corresponding to CAE "68100 - Purchase and sale of real estate", represented by the company "A... - Real Estate Investment Fund Management Company, S.A.", TAX ID..., in its capacity as management company.
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On 20-06-2018, the Claimant submitted an Administrative Appeal with the Tax Authority, aimed at the annulment of the tax acts relating to Stamp Duty that was tacitly dismissed.
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At issue is a credit contract granted by Bank C... – the contract for opening credit by overdraft on account concluded between the Fund and that banking institution – associated with the demand deposit account no. ..., concluded on 12 May 2011 and altered by subsequent amendments.
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Bank C..., in its capacity as the tax debtor, assessed and paid the Stamp Duty owing with reference to that contract through the respective tax payment slips.
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The aforementioned Bank passed on the Stamp Duty assessed to the Fund's sphere, as the user of the credits, the latter bearing the entire burden.
There are no facts deemed unproven with relevance to the case.
The Tribunal formed its conviction regarding the proven facts based on the documents attached to the petition, on the administrative file attached by the Tax Authority with its response, and documents attached with the Claimant's request of 23 April 2019.
The Claimant attached to the case file – in accordance with Doc. No. 2 attached to the case with the request for arbitral determination – a declaration issued by the lender with identification of the loan contracts and identification of the payment slips through which the Stamp Duty passed on to the Fund's sphere was assessed under the loan contracts in question and attached to the case file by the Claimant.
Furthermore, the Claimant, once again by way of documentary evidence – Doc. No. 4 attached with the request – attached bank statements, with reference to the debit of interest, from which results the amount of the Stamp Duty Table applied, the rate and the amount of tax, as well as identification of the loan contract.
The Claimant demonstrated, through documentary evidence, that the tax is assessed on the credit contract granted by Bank C... – the contract for opening credit by overdraft on account concluded between the Fund and that banking institution – associated with the demand deposit account no. ..., concluded on 12 May 2011 and altered by subsequent amendments, as per the documents attached to the case file as referred to herein.
To complement this, the Claimant further attached – as Doc. No. 2 of the autonomous request referred to above – invoices issued by the Bank with identification of the amounts of the Stamp Duty in question in the case file.
Considering the content of the documentary evidence attached to the case file, the tribunal has no doubt as to the object on which the tax is assessed, thereby considering the facts described as proven.
Legal Matters
- Assessment of the issues raised by the Claimant
6.1. Financial Institution in Community Law
The fundamental issue at the heart of the present case consists of determining whether the real estate investment fund B... should be considered a financial institution, within the scope of European Union Law, in order to benefit from the Stamp Duty exemption provided for in subparagraph e) of no. 1 of article 7.º of the Stamp Duty Code (SDC). Under the terms of that provision, the following are exempt from Stamp Duty:
"Interest and commissions charged, guarantees provided, and likewise the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and corporate purpose fulfil the types of credit institutions, financial companies and financial institutions provided for in community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with a privileged tax regime, to be defined by order of the Minister of Finance".
It should be noted that no. 7 of the same article 7.º of the SDC, introduced by Law no. 7-A/2016 of 30 March, states that "The provision in subparagraph e) of no. 1 applies only to guarantees and financial operations directly intended for the provision of credit, within the scope of the activity exercised by the institutions and entities referred to in that subparagraph."
In the present case, the rule resulting from the joint reading of these provisions would permit the exemption from Stamp Duty of the interest, commissions charged, guarantees provided and use of credit granted by credit institutions, in their capacity as lenders, to financial institutions provided for in community legislation, in their capacity as borrowers, all of them domiciled in Member States of the European Union. By referring to the institutions provided for in community legislation, the cited rule follows an orientation similar to that of article 11.º no. 2, of the LGT, which provides that "Whenever, in tax provisions, terms specific to other branches of law are used, they must be interpreted in the same sense as they have therein, unless otherwise directly provided by law." However, in the present case, there is no margin for doubt insofar as it is the very article 7.º, no. 1, subparagraph e), of the SDC that refers to the concept of financial institution as provided for in community legislation.
This referral to a technical-legal concept – that of financial institution – with the meaning it has in European Union law must be read and interpreted as fulfilling the requirements of legal certainty and protection of confidence, inherent in the principle of the rule of law, which the constitutional text assigns to tax law.
Specialized legal doctrine has addressed the figure of real estate investment funds, such as B..., within the framework of collective investment bodies (CIB). An academic study by Patrícia Andreia de Oliveira Jordão (Real Estate Investment Funds, ISCAL, Lisbon, 2010, 1) characterizes the figure of the collective investment body as an institution that "aims at the collective investment of capital obtained from the public, whose operation is subject to a principle of risk distribution and the pursuit of the exclusive interest of the participants, such as Real Estate Investment Funds", going on to clarify that "a real estate investment fund is one that makes its applications fundamentally in real estate, representing an alternative financial product to the usual forms of application of investors' savings, namely in bank deposits and direct investment in the capital market".
Article 4.º, no. 1, subparagraph a), of Directive no. 2011/61/EU of the European Parliament and Council, of 8 June 2011, on the managers of alternative investment funds and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) no. 1060/2009 and (EU) no. 1095/2010, delineates, within the category of collective investment bodies, the subcategory of alternative investment funds (AIF), characterized by gathering capital from a certain number of investors, with a view to investing it in accordance with an investment policy defined for the benefit of those investors, and not requiring the authorization provided for in article 5.º of Directive 2009/65/EC, of 13 July, which coordinates the legislative, regulatory and administrative provisions relating to certain undertakings for collective investment in transferable securities (UCITS). This classification corresponds to that set out in Law no. 16/2015 (amended by Decree-Law 124/2015, of 7 July) – which partially transposes Directives nos. 2011/61/EU and 2013/14/EU – which establishes the General Regime for Collective Investment Bodies, which, in article 2.º subparagraph aa), ii., classifies under the category of "alternative investment bodies" the "open or closed bodies, whose object is investment in real estate assets, referred to as «real estate investment bodies»". By satisfying the respective criteria, B... must be qualified as a real estate investment body, more specifically, an AIF.
Within the scope of European Union law, the provision of Directive (EU) 2015/849 of the European Parliament and Council, of 20 May 2015, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, must be considered. In its article 3.º, no. 2, subparagraph d), it expressly includes in the concept of "financial institution" collective investment bodies that market their shares or units of participation. This occurs with open investment funds, as in the case of B..., in which investors may subscribe to (purchase) and redeem (sell) units of participation at any time.
It is also important to note two considerations raised by the Arbitral Tribunal of the CAAD in the Decision regarding Case no. 123/2018-T, of 28-9-2018. In the same direction points the taxonomy of financial institutions long adopted by the Bank of Portugal, namely for the purposes of collecting statistical data. There, different types of financial institutions are distinguished, namely monetary financial institutions (MFI) and non-monetary financial institutions (NMFI). MFIs include, in addition to the Bank of Portugal, banks, savings banks, mutual agricultural credit associations and money market funds. The category of NMFI, which excludes insurance companies and pension funds, includes, in the subcategory of financial intermediaries, among others, investment funds (with the exception of money market funds), together with venture capital companies, factoring companies, financial companies, financial companies for credit acquisitions, financial holding companies in the financial sector or financial leasing companies. As financial auxiliaries, the NMFI category also includes, in particular, investment fund management companies.
This classification is relevant, in the context of interpretation and application of the exemption provided for in article 7.º, no. 1, of the SDC, insofar as it corresponds to that adopted by the European Central Bank, which also considers investment funds (IF), excluding pension funds and money market funds, as non-monetary financial institutions, including them in the list of financial institutions.
According to the generally adopted typologies, B... is a real estate investment fund, inserted in the category of collective investment institutions, referred to as "collective investment bodies", and should therefore be considered a financial institution, in light of community law. Moreover, the Tax and Customs Studies Centre (CEF), in Opinion no. 25/2013, of 28.5 – addressing the possible subjection to Stamp Duty of management commissions charged by a venture capital company for the administration of a venture capital fund – analyzed article 7.º, no. 1, subparagraph e), of the Stamp Duty Code. In that Opinion, the CEF sustained that both funds and venture capital companies are considered financial institutions under community and national legislation.
In the same sense pronounced itself a doctrinal note resulting from a Binding Ruling regarding a case identical to the one assessed here, where the Tax Authority declares that real estate investment funds are qualified as a financial institution, under European Union legislation, and as such must be considered exempt from Stamp Duty under subparagraph e) of no. 1 of article 7.º of the SDC with respect to commissions charged when directly intended for the provision of credit within the scope of the activity exercised by the institutions and entities referred to therein. There it was sustained that, just as a venture capital fund should be qualified as an AIF, and, as such, is a "Financial Institution", so too should a real estate investment fund likewise be qualified as such.
The regulatory and interpretive data just set forth point to the consideration of B... as a financial institution under the provisions of European Union financial law. Now, Bank C..., in its capacity as the tax debtor, assessed and paid the Stamp Duty owing with reference to the contract for opening credit by overdraft on account concluded between the Fund and that banking institution through the respective tax payment slips. The aforementioned Bank passed on the Stamp Duty assessed to the Fund's sphere, as the user of the credits, the latter bearing the entire burden. It follows from what has been stated above, however, that in light of article 1.º no. 7, subparagraph e), of the SDC and article 11.º, no. 2, of the LGT, the credits, interest and commissions charged thereon by Bank C... must be considered exempt from Stamp Duty. For this reason, the illegality of the respective assessments must be declared, with full reimbursement being due of the amount of € 441,884.23 assessed and paid to the State unduly.
6.2. Reimbursement and Indemnifying Interest
The Claimant formulates a request for restitution of the sums collected by the Tax Authority, as well as for payment of indemnifying interest. Under the terms provided in subparagraph b) of article 24.º of the RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge may be available binds the Tax Authority from the end of the period provided for appeal or challenge, with the Tax Authority required, in the exact terms of the success of the arbitral decision in favor of the tax debtor and up to the end of the period provided for the spontaneous execution of decisions of tax court judgments, to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been carried out, adopting the necessary acts and operations for that purpose", in accordance with the provision of article 100.º of the LGT [applicable by virtue of the provision in subparagraph a) of no. 1 of article 29.º of the RJAT] which establishes that "the tax administration is obliged, in case of full or partial success of a claim, judicial challenge or appeal in favor of the tax debtor, to immediately and fully restore the legality of the act or situation that is the subject of the litigation, including the payment of indemnifying interest, if applicable, from the end of the period of execution of the decision".
Notwithstanding the fact that article 2.º, no. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral courts functioning at the CAAD, making no reference to condemnatory decisions, it has long been understood that this includes the powers that in the process of judicial challenge are attributed to the tax courts, and that is the interpretation that is in tune with the sense of the legislative authorization on which the Government based itself in approving the RJAT, in which the first guideline is proclaimed, namely that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
Although it is, essentially, a process of annulment of tax acts, the judicial challenge process admits the condemnation of the Tax Authority to the payment of indemnifying interest, as is apparent from article 43.º, no. 1, of the LGT, which establishes that "indemnifying interest is due when it is determined, in an Administrative Appeal or judicial challenge, that there was an error attributable to the administrative services from which results payment of the tax debt in an amount greater than that legally due" and article 61.º, no. 4, of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which provides that "if the decision that recognized the right to indemnifying interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution". Under the terms of no. 5 of this same article, "Interest is counted from the date of the unduly paid tax to the date of processing of the respective credit note, in which they are included."
Thus, no. 5 of article 24.º of the RJAT, by stating that "interest payment is due, regardless of its nature, under the terms provided in the general tax law and in the Code of Tax Procedure and Process", must be understood as permitting the recognition of the right to indemnifying interest in the arbitral process. This understanding flows from the principle of effective judicial protection and the corresponding expansion of the powers shaping administrative and tax jurisdiction. Therefore, the Claimant has the right to be reimbursed of the tax paid and indemnifying interest by virtue of the aforementioned articles 24.º, no. 1, subparagraph b), of the RJAT and 100.º of the LGT, as this is essential to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been carried out".
In the present case, it is a matter of the illegal assessment of Stamp Duty to the real estate fund, without regard to the exemption provided for in article 7.º, no. 1, subparagraph e), and no. 7, of the SDC, contrary to, in addition to Directives no. 2011/61/EU and no. 2015/849, the understanding sustained by the Tax and Customs Studies Centre (CEF), in Opinion no. 25/2013, of 28.5 – addressing the possible subjection to Stamp Duty of management commissions charged by a venture capital company for the administration of a venture capital fund – by the Tax Authority itself, in a doctrinal note resulting from a Binding Ruling regarding a case identical to the one assessed here.
III – Decision
In these terms, it is decided:
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To declare the illegality of the decision of tacit dismissal in the context of the Administrative Appeal Procedure.
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To declare the partial illegality of the tax acts relating to Stamp Duty, to which the contested payment slips correspond, for error in the factual and legal assumptions;
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To determine the reimbursement of the amount of Stamp Duty unduly paid in the amount of € 441,884.23 together with the payment of indemnifying interest, under the terms of article 43.º of the LGT and 61.º of the CPPT.
IV - Value of the Case
The Claimant indicated as the value of the case the amount of € 441,884.23, which was not disputed by the Respondent and corresponds to the value of the assessments, therefore, the value of the case is fixed at that amount.
V - Costs
Under the terms of articles 12.º, no. 2, and 24.º, no. 4, of the RJAT, and 3.º, no. 2, of the Costs Regulation in Tax Arbitration Proceedings and Table I annexed to that Regulation, the amount of costs is fixed at € 7,038.00 to be borne by the Respondent.
Notify.
Lisbon, 2 September 2019
The Arbitrator-President
(Carlos Alberto Fernandes Cadilha)
The Arbitrator-Member
(Marisa Almeida Araújo)
The Arbitrator-Member
(Jónatas Machado)
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