Process: 678/2016-T

Date: April 20, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 678/2016-T) addresses whether Stamp Tax under item 10.3 of the General Stamp Tax Table (TGIS) applies to mortgages constituted as counter-guarantees for autonomous bank guarantees. The taxpayer company constituted four mortgages on December 4, 2009, as security for four autonomous bank guarantees provided by a bank, which themselves secured obligations in arbitration proceedings. The Tax Authority assessed €22,857.29 in Stamp Tax on these mortgages. The claimant challenged the assessments on three grounds: first, that the mortgages are materially accessory to the autonomous bank guarantees already taxed under item 10 TGIS, thus excluded from taxation under the accessory guarantee exception; second, that taxing both the bank guarantees and the mortgages violates the prohibition against cumulative taxation in Article 22(2) of the Stamp Tax Code; and third, that the assessments breach constitutional principles of tax equality and ability to pay under Articles 13 and 103 of the Portuguese Constitution and Articles 4 and 5 of the General Tax Law. The Tax Authority defended the assessments, arguing that material accessoriness requires a direct dependency relationship between guarantee and guaranteed obligation. Citing Circular 15/2000, the AT characterized autonomous bank guarantees as mere promises to provide guarantees, concluding that mortgages secure the debtor's contractual obligations rather than the bank guarantee itself, thus lacking the material accessoriness required for the exclusion. This case turns on interpreting 'material accessoriness' and whether counter-guarantees supporting autonomous bank guarantees fall within the scope exclusion for accessory guarantees under item 10 TGIS, with significant implications for structured guarantee arrangements in Portuguese commercial transactions.

Full Decision

ARBITRAL DECISION

I. REPORT

On 14 November 2016, the company A…, Ltd., with TIN … and registered office at …, no.…, …, in Lisbon (hereinafter referred to as Claimant), filed a request for constitution of an Arbitral Tribunal, pursuant to the combined provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (RJAT), with the Tax and Customs Authority (hereinafter AT or Respondent) as respondent, stating that it did not intend to exercise the power to appoint an arbitrator, in accordance with article 6, no. 2 of the RJAT.

The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the AT on 2 December 2016, with the undersigned being appointed as arbitrator of the sole arbitral tribunal, without objection from the Parties.

A. Subject Matter of the Request:

The Claimant requests that the arbitral tribunal annul the dismissal orders of the hierarchical appeal and the administrative petition that upheld the Stamp Duty (Stamp Duty Tax Code item 10.3) assessments, in the total amount of € 22,857.29, whose annulment is likewise requested, relating to four mortgages constituted by it on 4 December 2009, as counter-guarantees to four autonomous bank guarantees provided to it by B…, SA.

The Claimant further requests that the Respondent be condemned to reimbursement of the amounts unduly paid, plus compensatory interest, in accordance with article 43 of the General Tax Code (LGT), from the date of the respective payment until the date of its actual restitution.

B. Summary of the Parties' Positions

a. Of the Claimant:

As grounds for the request to annul the Stamp Duty assessment acts disputed, the Claimant invokes the material ancillarity of the mortgages that were their basis, in relation to the autonomous bank guarantees provided to it by B…, SA, from which ancillarity results the exclusion of those mortgages from the scope of item 10.3 of the General Stamp Duty Tax Code, as the said autonomous bank guarantees constitute contracts specially taxed in the same General Table (item 10 of the General Stamp Duty Tax Code), formulating the following conclusions:

1. The disputed assessments are unlawful, due to error in the application of law, given the breach of the exclusion of scope provided for in item 10 of the General Stamp Duty Tax Code, resulting from the failure to recognize the verification of the conditions for its application;

2. The disputed assessments are unlawful, because they breach the prohibition of accumulation of the tax with respect to the same act or document, enshrined in no. 2 of article 22 of the Stamp Duty Code;

3. The disputed assessments are further unlawful, because they breach the principles of tax equality and taxpaying capacity, enshrined in articles 4, no. 1 and 5, no. 2 of the LGT and in articles 13, no. 1 and 103, no. 1 of the Constitution of the Portuguese Republic.

b. Of the Respondent:

Notified in accordance with and for the purposes provided for in article 17 of the RJAT, the AT presented its response and filed the administrative proceedings, defending the lawfulness and maintenance of the assessment acts subject of the present request for arbitral decision, with the following grounds:

1. The Stamp Duty "… applies to all acts, contracts, documents, titles, books, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property", in accordance with article 1, no. 1 of the Stamp Duty Code (CIS);

2. Pursuant to item 10 of the General Stamp Duty Tax Code, guarantees of obligations are subject to Stamp Duty, regardless of their nature or form, in particular autonomous bank guarantees and mortgages, except when materially ancillary to other contracts specially taxed in the same Table and are constituted simultaneously with the guaranteed obligation, even if in different instruments or documents;

3. It is the Respondent's understanding that it is sufficient for ancillarity to exist any causal relationship, even if indirect, between the obligation and a guarantee provided; however, for purposes of the exclusion provided for in item 10 of the General Stamp Duty Tax Code, ancillarity presupposes a relationship of dependence between the guarantee and the guaranteed obligation;

4. Circular no. 15/2000 characterizes the autonomous bank guarantee as a mere promise to provide a guarantee, not covered by the scope of Stamp Duty;

5. It follows from the foregoing that the said mortgages are not legally the guarantee, or if one wishes, the counter-guarantee of the autonomous bank guarantee contract, but are the guarantee of the performance of the set of duties assumed by the debtor/applicant in the contract promise to provide a guarantee.

The AT concludes by requesting the waiver of production of witness evidence offered by the Claimant, as the question submitted for the arbitral tribunal's consideration is strictly a legal question and sufficient documentary evidence is contained in the file.

II. PRELIMINARY MATTERS

1. The sole arbitral tribunal is competent and was regularly constituted on 1 February 2017, in accordance with articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT.

2. The Parties have legal standing and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Administrative Regulation no. 112-A/2011, of 22 March.

3. The proceedings do not suffer from defects that would invalidate them.

4. The joinder of claims, even relating to different acts, is admissible, pursuant to no. 1 of article 3 of the RJAT, to the extent that the success thereof depends on the assessment of the same factual circumstances and the interpretation and application of the same principles or rules of law, in the present case, item 10 of the General Table of Stamp Duty.

5. No exceptions were raised that the arbitral tribunal should assess.

6. By arbitral order of 13 March 2017, the Parties were notified of the possibility of waiving the meeting referred to in article 18 of the RJAT, if the Claimant did not object, with an invitation to produce successive written submissions within a period of 10 days, commencing with the Claimant;

7. The Parties produced neither oral nor written submissions.

III. GROUNDS FOR DECISION

III.1 FACTUAL MATTERS

Before addressing the legal questions, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence and the administrative file attached to the record and having also taken into account the facts alleged, is established as follows:

A) Proven Facts

1. On 23 November 2009, four contracts for the provision of bank guarantees were executed between the Claimant, in its own name and on behalf and for account of its principals, in the capacity of applicant, and B…, SA (hereinafter B…), in the capacity of guarantor, in which the beneficiary was the company C…, SA, for the purpose of "securing the good and complete payment by the principals of the APPLICANT, in the dual capacity indicated above, of the amount that may be considered due in arbitral proceedings related to the construction contract executed on 2 October 2005 between these principals and the BENEFICIARY": (i) Operation no.…, for guarantee of liability up to € 700,000 (seven hundred thousand euros); (ii) Operation no.…, for guarantee of liability up to € 700,000 (seven hundred thousand euros); (iii) Operation no.…, for guarantee of liability up to € 422,701.88 (four hundred twenty-two thousand, seven hundred one euros and eighty-eight cents) and (iv) Operation no.…, for guarantee of liability up to € 700,000 (seven hundred thousand euros), with Stamp Duty of item 8 of the General Stamp Duty Tax Code being paid for each contract in the amount of € 5.00 – Doc. 1 attached to the administrative file;

2. In all said contracts, in which B… conditioned the perfection of the contract and the consequent issuance of the guarantee to the prior delivery or deposit with it, by the Applicant, of the amount corresponding to the Stamp Duty owed by the same, it was agreed that (i) the guarantee was intended to remain in effect as long as the obligation it was intended to secure subsisted – clause 7; (ii) the Applicant, now Claimant, authorized B… to make the payments that might be requested of it by the Beneficiary, without having to assess or verify the justice of the latter's claim, limiting itself to notifying the Applicant, in writing, of any payment requests made by the Beneficiary, indicating the date on which it would proceed to make payment – clause 9, and (iii) the amounts that might be owed to B… by the Claimant under the guarantee contract would be secured by mortgage on real property of its ownership, to be constituted in the Name Register of B…, on the date of perfection of those contracts – clause 19;

3. On 4 December 2009, the guarantees relating to Operations nos. …, …, … and … were issued, pursuant to which B… obliged itself to pay "immediately upon demand, in cash, to the Beneficiary, and up to the limit of this guarantee, all and any amounts that may be requested of it" (…) "without having to concern itself with their justification or compliance with the terms of the identified construction contract" (…), upon presentation of "certificate of the Arbitral Tribunal decision (…)", with Stamp Duty of item 10.3 of the General Stamp Duty Tax Code being paid in the amounts of € 4,200.00, € 4,200.00, € 2,536.21 and € 4,200.00, respectively – Docs. 2 and 3 attached to the administrative file;

4. On the same date mentioned above, four mortgage deeds on real property owned by the Claimant were executed at the Name Register of B…, therein registered under nos. …, …, … and …, pursuant to clause 1 of each of which, these were intended for "guarantee of the liabilities arising from a bank guarantee provision contract, dated 23 November 2009 (…), covering such liabilities: the credit of … resulting from the payment that, in execution of a bank guarantee provided by it, (…) will make to the beneficiary of the guarantee (…)" – Doc. 4 attached to the administrative file;

5. For the constitution of said mortgages, Stamp Duty of item 10.3 of the General Stamp Duty Tax Code was assessed and paid by the Claimant at the rate of 0.6% in the amounts of € 6,339.70, € 6,339.70, € 3,838.19 and € 6,339.70, in a total of € 22,857.29 – Doc. 5 attached to the administrative file;

6. The Claimant filed an administrative petition against the Stamp Duty assessments indicated in the preceding paragraph (no. …2010…, of the Lisbon Tax Office …), of whose dismissal it was notified by means of official notice no. …, of the Administrative Justice Division of the Lisbon Finance Directorate, dated 25 November 2010 – Doc. 6 attached to the administrative file;

7. The hierarchical appeal filed against the foregoing decision, registered under no. …2010…, was likewise dismissed, by order of the Deputy Director-General of Taxes, dated 02/05/2016, notified to the Claimant by official notice no. …, of the Administrative Justice Division of the Lisbon Finance Directorate, dated 12 August 2016 (CTT Registration no. RD … PT) – Doc. 8 attached to the administrative file.

B) Unproven Facts

There are no facts of relevance to the cause that have been considered unproven.

III.2 LAW

1. The Question to be Decided

The dispute that the arbitral tribunal is called upon to settle concerns the question of whether, in light of the wording of item 10 of the General Stamp Duty Tax Code, the mortgages constituted by the Claimant as counter-guarantee of autonomous bank guarantees, simultaneously with the same, albeit in different instruments, benefit from the exclusion of scope provided therein, because they should be considered ancillary to a contract specially taxed in the same General Stamp Duty Tax Code, as argued by the Claimant, or whether, on the contrary, the said mortgages are not legally the guarantee of the autonomous bank guarantee contract, but rather guarantee of the performance of the set of duties assumed by the debtor/applicant in the contract promise to provide a guarantee, as argued by the Respondent.

In order to answer such question, it is necessary to determine the nature and object of the autonomous bank guarantee contract and whether between that contract and the counter-guarantee constituted by a mortgage, also itself a special guarantee of obligations, covered by item 10 of the General Stamp Duty Tax Code, there exists a relationship of material ancillarity that justifies the exclusion of the scope of Stamp Duty of item 10 of the General Stamp Duty Tax Code, in which it is provided that the tax applies to "Guarantees of obligations, whatever their nature or form, in particular promissory notes, guarantees, autonomous bank guarantees, sureties, mortgages, pledges and guarantee insurance, save when materially ancillary to contracts specially taxed in this Table and are constituted simultaneously with the guaranteed obligation, even if in different instruments or documents (…)".

1.1 The Nature and Object of the Autonomous Bank Guarantee Contract

The autonomous bank guarantee, on first demand, has been characterized by national legal writers as an atypical contract, concluded under the principle of freedom of contract (article 405 of the Civil Code), which occurs when a given entity, normally a banking institution, comes, in exchange for remuneration, to personally guarantee the performance of another's obligation, obliging itself to pay to the beneficiary a certain sum of money in the event of non-performance or defective performance of a determined contract (referred to as the base contract), "without being able to invoke in its favor any means of defense related to that same contract"[1].

Accordingly, the autonomous guarantee detaches itself from or abstracts itself from the vicissitudes of the principal contract, in which respect it differs from a surety guarantee, as while the surety binds itself to performance of the debtor's obligation, the guarantor is bound by its own obligation which, according to Francisco Cortez, "may be classified as a guarantee by reason (function of guarantee), and indemnification by purpose (intended to repair the creditor's damages) (…)"[2].

We cannot, therefore, fail to agree with the Respondent when it states that "To that extent, because it is necessarily independent of the so-called base contract, an autonomous bank guarantee can never be considered ancillary to a contract specially taxed in the General Stamp Duty Tax Code" (article 20 of the response) and that "It is, thus, by nature, inapplicable to the autonomous bank guarantee the tax exclusion of item 10, final part, of the General Stamp Duty Tax Code" (article 22 of the Response).

But that is a question that is not raised by the Claimant, which on the contrary expressly states in articles 39 and 40 of the initial petition that "Indeed, it should be noted that what is argued here is the existence of ancillarity between the mortgages constituted as counter-guarantee and the autonomous bank guarantees, …" and "… and not the existence of ancillarity between the autonomous bank guarantees and the obligation guaranteed by the latter – the possible payment liabilities arising from the decision of the arbitral tribunal in the dispute that opposed the Claimant to the construction company C…".

To support the non-ancillarity of the mortgages constituted by the Claimant as counter-guarantee of the autonomous bank guarantee contracts that underlie them, the Respondent invokes the various contractual relationships presupposed by the autonomous bank guarantee, namely: (i) that resulting from the base contract constitutive of the guaranteed obligation, concluded between the guaranteed creditor and the debtor/applicant; (ii) that established between the debtor and the guarantor, and (iii) that by which the autonomous bank guarantee is provided by the guarantor to the creditor of the base contract, to conclude that it is the latter that may be considered an autonomous bank guarantee.

Thus, according to the AT, the contracts executed between the Claimant and B… would be no more than mere contracts-promises to provide a guarantee, which are not specially taxed in the General Stamp Duty Tax Code, and in which provision was made not only for the obligation of the guarantor to execute, on the terms fixed therein, the autonomous bank guarantee contract with the creditor, in exchange for a patrimonial consideration from the debtor/applicant, but also for the duty to reimburse the bank in the event the guarantee comes to be executed and any guarantees of that possible right of the guarantor against the debtor/applicant, designated as counter-guarantees (article 31 of the Response).

It is believed, however, that it is not correct, as the function of the autonomous bank guarantee is precisely to guarantee an obligation that may be eventual: the guarantor does not provide a guarantee to the beneficiary and if called upon to satisfy the latter's credit against the debtor/applicant, the guaranteed obligation becomes extinguished as does the guarantee itself, for want of object, leaving only the guarantor's right of recourse against the applicant.

We permit ourselves to cite the words of Jorge Duarte Pinheiro on this matter: "The contract-promise is the contract by which one or both parties obligate themselves to execute a new contract.

Through the bank-principal debtor contract, one of the parties (the bank) assumes toward the other (the order-giver) the obligation to perform a service in favor of a third party (the beneficiary), external to the contract. Since the service that the bank obligates itself to perform toward the principal debtor is the execution of an autonomous guarantee contract with the beneficiary, the bank-debtor contract appears to be (pact of contracting with a third party).

It appears to be. It is not. The pact of contracting with a third party is "the contract by which someone obligates himself to perform with a third party, on his own account, a legal transaction.

The bank obligates itself to execute the guarantee contract on account of the order-giver. That is, with the intention of transferring to the order-giver the burdens of its intervention. As a starting point the order-giver obligates himself to reimburse the bank for the payment that the latter may make upon request of the beneficiary of the autonomous guarantee."[3].

The same Author further clarifies that the autonomous bank guarantee contract is a non-real contract, that is, one whose perfection does not require the delivery of a thing[4].

In light of what has been said, it is clear, on the one hand, that the bank guarantee contract is not a contract-promise to provide a guarantee, but rather the contract that has as its object the guarantee personally assumed by the bank of the performance of the applicant's obligation toward the beneficiary, being a contract specially taxed by the General Stamp Duty Tax Code, as was in fact the case in the matter under examination.

It might perhaps be conceded that the contracts executed between the Claimant and B… on 23 November 2009, for which Stamp Duty of the then item 8 of the General Stamp Duty Tax Code was paid, subsequently repealed by Law no. 3-B/2010-28/04 (Writings of any contracts not specially provided for in this Table, including those made before public entities - for each one - € 5), had the nature of contracts-promises to constitute a guarantee, conditioned to deposit with the guarantor, of the amount corresponding to the Stamp Duty owed for the provision of guarantee, but not the guarantees constituted on 4 December 2009, which would be, in that hypothesis, the promised contracts.

Nor does it appear that the bank guarantee contract is constituted only at the moment when the guarantor is called upon to indemnify the creditor of the base contract. On the one hand, the creditor of the base contract is a third party with respect to the contract established between the guarantor and the applicant; on the other, nothing would justify the taxation of the bank guarantee at a date prior to its constitution, and, in the limit, in the event the bank guarantee is not executed, there would be no taxation, because it was not constituted.

1.2 The Mortgage as a Special Guarantee of Obligations. Ancillarity in Relation to the Autonomous Bank Guarantee Contract.

Pursuant to article 686 of the Civil Code, a mortgage is one of the special guarantees of obligations, which gives the creditor the right to be paid of its debt, with preference over other creditors, from the value of certain immovable things or those treated as such, belonging to the debtor or to third parties and, although it is "an accessory right, which exists only as a function of the obligation whose performance it secures"[5], even if the guaranteed obligation may be future or conditional.

Being a guarantee of obligations, the mortgage is specially taxed under Stamp Duty (item 10 of the General Stamp Duty Tax Code) and, as a real security right, is an accessory right of the guaranteed obligation.

The mortgages constituted by the Claimant are nothing more than a guarantee of the autonomous bank guarantee aimed at, as the Respondent rightly points out in article 19 of its Response, "securing the guarantor's right of recourse against the debtor/applicant, in the event the guarantor is called upon to honor the guarantee, and not the obligation assumed by the guarantor toward the creditor of the base contract, in the autonomous bank guarantee contract".

For the autonomous bank guarantee contract is never overemphasized as a contract entered into between the guarantor and the debtor/applicant, to which the creditor of the base contract is a stranger. And contracts entail for the parties a bundle of reciprocal rights and duties. Thus, the debtor/applicant, in addition to the agreed commission for providing the guarantee, is also obligated to reimburse the guarantor for the sum of money that the latter may expend in executing the guarantee, and it is normal that, like any creditor and, all the more so, given that it is a commercial enterprise, the bank should require a guarantee of the good performance of the contract by the order-giver – in this case the mortgage.

It is concluded, therefore, that there exists a genuine relationship of material ancillarity between the mortgages constituted by the Claimant and the obligations they were intended to secure, arising from the autonomous bank guarantee contract.

Although in the case dealt with by the Supreme Administrative Court (STA) in the Judgment of 24.10.2012, Proc. no. 028.12, available at http://www.dgsi.pt, the AT's tax claim was directed to a mortgage that was not registered and that was intended as counter-guarantee of an autonomous bank guarantee that was not issued, the STA did not fail to address the question of the ancillarity of the mortgage in relation to the autonomous bank guarantee, which it did in the following terms:

"The mortgage contract is understood in light of the requirements that financial institutions normally impose on their customers for the provision of certain guarantees or loans. To that extent and having regard to the evidentiary matters highlighted above, it should be classified as an ancillary contract of the principal one which in this case was the provision of a bank guarantee (Ancillary contracts are those that have the purpose of securing the performance of another contract, called the principal, of which the most illustrative example is a guarantee of debt.).

In the case before us and as well analyzed by the appealed judgment, it is proven that the mortgage constituted on 30.07.2003 was intended to guarantee issuance of a bank guarantee by the Economic Savings Bank Montepio Geral, with on that same day the matter relating to the bank guarantee being filed away by that credit institution, due to the withdrawal of the clients, here the Contesting Parties. Thus, if on that date the bank guarantee had been issued, the stamp tax was due, in accordance with article 5, paragraph h) of the CIS, at the moment of collection of the respective commission, debited to the Contestants' bank account. It having not been so, no taxable event occurs as the mortgage was, in the case at issue, a guarantee materially ancillary to the contract relating to the granting of a bank guarantee to be executed on that occasion, and which ended up not being executed.

We believe that this line of understanding is followed in the study of Bruno Santiago in "The Guarantees of Obligations and Stamp Duty" Coimbra Editorial, when on page 130 and when analyzing the excerpt of item 10 of the General Stamp Duty Tax Code, highlighted above, states: "The excerpt of the provision under examination excludes from taxation guarantees when they are ancillary to other contracts that are also taxed in Stamp Duty. The legislator's intention is clear and understandable: to avoid situations of double taxation always undesirable and that would excessively burden operations. However, to guard against possible abuse by taxpayers, this exception was surrounded by tight requirements: i) the need for a material ancillarity and not merely formal; and, ii) the constitution of the guarantee on the same date as the guaranteed obligation"

In the same line of understanding see Luís Fragoso "Autonomous Bank Guarantees and Stamp Duty (To Tax or Not to Tax? That is the Question), Verbo Jurídico, March 2010" which, referring to item no. 10 of the General Stamp Duty Tax Code, explains:

"Let us ascertain, then, in an independent manner, the meaning and scope of this legal provision, seeking to provide a sure answer to the question that we propose to answer, bearing in mind that the problem lies essentially in the meaning of the indeterminate concept that is "material ancillarity".

Now, as results from the first part of the cited provision, the legislator determined that all guarantees of obligations, "whatever their nature or form," are taxed under Stamp Duty. And to reinforce that the nature or form of guarantees is irrelevant, it gave various examples of guarantees, with different natures and forms. Reason for which it mentioned promissory notes, autonomous bank guarantees and guarantee insurance alongside mortgage and guarantees – the latter classical examples of guarantees of obligations.

Thus, the nature or form of guarantees is irrelevant for purposes of taxation under Stamp Duty, such that it results from the first part of item no. 10 of the General Stamp Duty Tax Code that autonomous bank guarantees, simple or on first demand, are also, as a general rule, subject to Stamp Duty.

However, the second part of the cited item no. 10 of the General Stamp Duty Tax Code establishes an important exception by establishing that all guarantees of obligations, "whatever their nature or form," are not taxed under Stamp Duty if it is verified that:

- they are "materially ancillary to contracts specially taxed in this Table; and

- they are constituted simultaneously with the guaranteed obligation, even if in different instruments or documents"

This second part of item no. 10 of the General Stamp Duty Tax Code thus establishes three cumulative requirements for guarantees not to be taxed under Stamp Duty. These are:

- the existence of material ancillarity between the guarantee and the obligation;

- the guaranteed obligation is specially taxed by the General Stamp Duty Tax Code; and

- simultaneity between the birth of the guaranteed obligation and the constitution of the respective guarantee;

The requirement of simultaneity does not present us with problems in understanding its meaning, as it is broadly understood that it is satisfied when the guarantee and the guaranteed obligation are born on the same day, even if they are constituted or formalized in different documents. (1 Circular Order no. 40091, of 17 September 2007, from the Directorate of Services for the Municipal Tax on Onerous Property Transfers, Stamp Duty, Road Taxes and Contributions, which states in its item 4 "Simultaneous constitution operates when the dates of the principal contract and the guarantee provision contract are common.")

In turn, the requirement that the guaranteed obligation is specially taxed by the General Stamp Duty Tax Code also does not present us with problems as to its meaning, as it results that only guarantees of obligations arising from an act specially taxed by the General Stamp Duty Tax Code are relevant. By way of example, see the case of a guarantee – whatever it may be – that is provided to secure the good performance of the obligations arising from a contract-promise to buy and sell property. Such a guarantee, even if it meets the requirements of ancillarity and simultaneity, cannot enjoy exclusion from taxation, given that the guaranteed contract (the contract-promise) is not specially taxed in the General Stamp Duty Tax Code.

It remains for us to ascertain the meaning of the requirement of "material ancillarity" and whether the same is also verified or not in the case of autonomous guarantees. As it is not sufficient that the requirements of simultaneity and that the guaranteed obligation be specially provided by the General Stamp Duty Tax Code are met for us to conclude by the non-taxation of the guarantees in question.

Now, concerning the meaning of the requirement of "material ancillarity," ANTÓNIO CAMPOS LAIRES and JORGE BELCHIOR LAIRES understand that "(…) as is apparent from the expression «materially ancillary», it is an essential requirement for the functioning of this tax exclusion the verification of an ancillarity in a material sense, that is, the existence of an effective link between guaranteed obligation and guarantee provided, whether or not a formal ancillarity exists, understood as the insertion of those acts in the same instrument or document. Thus, in our view, those guarantees that, even though constituted in the same document or instrument of a contract specially taxed by the Table, guarantee the obligations arising from another contract executed by the intervening parties should not benefit from this exclusion." 2 (In "Stamp Duty Code Annotated and Commented", Alda Publishers, 2000, p. 131).

Also concerning the concept of "material ancillarity," the Directorate of Services for the Municipal Tax on Onerous Property Transfers, Stamp Duty, Road Taxes and Contributions has already ruled, in its Circular Order no. 40091, of 17 September 2007, in which it stated: "The mortgage has an ancillary nature when there is a credit right associated with its fate: the notion of ancillarity then expresses the temporal connection between the guarantee and the guaranteed credit. Thus, when there is ancillarity and if the credit is extinguished or reduced, the guarantee terminates or diminishes. There is no ancillarity when the mortgage is intended to guarantee not only the liabilities arising from a loan contract, but also the liabilities assumed or that may be assumed by the borrower with the credit institution and arising from any other banking operations."

It seems to us that what is said in this Circular Order no. 40091, of 17 September 2007, is applicable to all guarantees constituted pursuant to item no. 10 of the General Stamp Duty Tax Code, as, as we have seen, the mortgage is one of the guarantees provided for therein, by way of example, and the understanding resulting from the Circular Order is compatible with the provisions of item no. 10 of the General Stamp Duty Tax Code, as well as with other types of guarantees.

Additionally, we cannot forget that the requirement of material ancillarity was introduced by Law no. 150/99, of 11 September, in the present wording of item no. 10 of the General Stamp Duty Tax Code."

Adhering to the cited case law and legal opinion and, anticipating the decision, it shall be said that the disputed assessments cannot be maintained in the legal system, due to error in the legal presuppositions on which they were based.

2. The Request for Compensatory and Default Interest

The tax arbitration process was designed as an alternative means to judicial impugnation proceedings (see the legislative authorization granted to the Government by article 124, no. 2 (first part) of Law no. 3-B/2010, of 28 April – Budget Law of the State for 2010), and it should be understood that the arbitral tribunals functioning under the aegis of CAAD have the same powers that, in judicial impugnation proceedings, are attributed to tax tribunals, such as the power to assess error attributable to the services.

In accordance with no. 1 of article 43 of the General Tax Code (LGT), applicable subsidiarily to tax arbitration proceedings, pursuant to article 29, no. 1, paragraph a) of the RJAT, "Compensatory interest is due when it is determined, in an administrative petition or judicial impugnation, that there was error attributable to the services from which resulted the payment of the tax debt in an amount greater than legally owed."

The cumulative requirements of the right to compensatory interest are thus: "– that there is an error in a tax assessment act; – that it be attributable to the services; – that the existence of that error be determined in an administrative petition or judicial impugnation proceeding; – that from that error has resulted the payment of a tax debt in an amount greater than legally owed."[6].

In the case at issue, although the Stamp Duty assessments disputed, relating to mortgages ancillary to autonomous bank guarantee contracts, were not issued by the AT, but rather by the Private Name Register of B…, in the capacity of taxpayer (article 2, no. 1, paragraph a) of the Stamp Duty Code, obligated to deliver the tax payment to the State, which collects and receives it through the Tax Administration, the State will be responsible for the compensatory interest due, all the more so as the Private Name Register of B… acted in accordance with the administrative instruction conveyed by Circular no. 15/2000 of the DGCI, of 5 July, pursuant to which:

"Guarantees associated with counter-guarantees

19. The contract for provision of a guarantee, insofar as it embodies a promise, is subject only to the tax of item 8 of the General Table. The associated guarantee document, for its part, configures the writing in which the constitution of the guarantee is formalized. Being thus, since the guarantee is specially taxed, the writing is not subject to the tax of the said item 8 of the Table. If there is a counter-guarantee associated with the guarantee provision contract and its constitution, all in the same document, there is Stamp Duty owed for the guarantee and for the counter-guarantee, but not for the writing, for the reasons being expressed."

IV. DECISION

Based on the factual and legal grounds set out above and, pursuant to article 2 of the RJAT, it is decided that, finding the present request for arbitral decision entirely well-founded:

a. Declare the unlawfulness of the Stamp Duty assessments (item 10.3 of the General Stamp Duty Tax Code) disputed, due to error in the legal presuppositions, determining their annulment;

b. Condemn the AT to reimbursement of the amounts unduly paid by the Claimant as Stamp Duty that was assessed and collected from it, plus compensatory interest, from the date of undue payment until the date of issuance of the respective credit notes.

VALUE OF THE CASE: In accordance with the provisions of article 306, nos. 1 and 2 of the Civil Procedure Code, 97-A, no. 1, paragraph a) of the Tax Procedure Code and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 22,857.29 (twenty-two thousand, eight hundred fifty-seven euros and twenty-nine cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 1,224.00 (one thousand two hundred twenty-four euros), to be borne by the Tax and Customs Authority.

Lisbon, 20 April 2017.

The Arbitrator,

/Mariana Vargas/

Document prepared by computer, pursuant to no. 5 of article 131 of the Civil Procedure Code, applicable by reference of paragraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The wording of the present decision is governed by the spelling agreement of 1990.

[1] Telles, Inocêncio Galvão, "Autonomous Bank Guarantee", in The Law, year 120, 1988 III-IV, July-December, pages 275 et seq.

[2] CORTEZ, Francisco, "The Autonomous Bank Guarantee – Some Problems", in Journal of the Bar Association, year 52, II, July 1992, pages 513 et seq.

[3] PINHEIRO, Jorge Duarte, "Autonomous Bank Guarantee", in Journal of the Bar Association, no. 52, 1992, page 434.

[4] Ibid., page 431.

[5] VARELA, J. M. Antunes, "Of Obligations in General", Vol. II, 7th Edition, Almedina, Coimbra, 1997, page 550.

[6] See SOUSA, Jorge Lopes de, Code of Tax Procedure and Tax Process – Annotated and Commented, Volume I, Áreas Publisher, 2006, page 472.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Verba 10.3 TGIS) due on mortgages constituted as counter-guarantees for autonomous bank guarantees?
Under Portuguese tax law, Stamp Tax under item 10.3 TGIS generally applies to mortgages constituted as counter-guarantees for autonomous bank guarantees unless the material accessoriness exception applies. The Tax Authority's position is that such mortgages are independently taxable because they secure the debtor's contractual obligations to the bank rather than the autonomous bank guarantee itself. However, taxpayers may argue that where mortgages directly support bank guarantees already subject to Stamp Tax under item 10 TGIS, the accessory guarantee exclusion should apply to prevent double taxation on economically linked guarantee structures.
How does the accessory nature of mortgages affect Stamp Tax liability under Portuguese tax law?
Material accessoriness (acessoriedade material) is crucial for Stamp Tax liability under item 10 TGIS. The accessory guarantee exclusion requires: (1) a dependency relationship between the guarantee and the guaranteed obligation, (2) the accessory guarantee must support a contract specially taxed in the General Table, and (3) simultaneous constitution with the guaranteed obligation (even if in separate documents). The Tax Authority interprets this narrowly, requiring direct dependency. For mortgages supporting autonomous bank guarantees, the AT argues no material accessoriness exists because autonomous bank guarantees are characterized as promises to provide guarantees (per Circular 15/2000), making mortgages security for contractual obligations rather than true counter-guarantees. This interpretation significantly impacts whether the exclusion applies.
Can Stamp Tax be cumulated on both a bank guarantee and its underlying mortgage under Article 22(2) of the Stamp Tax Code?
Article 22(2) of the Stamp Tax Code prohibits cumulative taxation on the same act or document. When both an autonomous bank guarantee and its underlying mortgage counter-guarantee are taxed, taxpayers may invoke this prohibition, arguing that taxing both elements of a unified guarantee structure constitutes prohibited accumulation. However, the Tax Authority typically counters that the bank guarantee and mortgage are distinct taxable events: the bank guarantee secures the beneficiary's rights, while the mortgage secures the bank's counter-guarantee rights against the applicant. This creates separate taxable relationships. The success of an accumulation challenge depends on whether the tribunal views the arrangement as a single economic transaction or separate juridical acts, with implications for structured finance and guarantee arrangements throughout Portuguese commerce.
What is the exclusion from Stamp Tax incidence under Verba 10 of the General Stamp Tax Table for accessory guarantees?
Item 10 of the General Stamp Tax Table (TGIS) taxes guarantees of obligations regardless of nature or form, including autonomous bank guarantees and mortgages. However, a critical exclusion exists: guarantees are not taxed when they are materially accessory to other contracts specially taxed in the same General Table and are constituted simultaneously with the guaranteed obligation, even if in different instruments. This exclusion prevents double taxation on economically integrated guarantee structures. For the exclusion to apply: (1) the primary contract must itself be taxed under the General Table, (2) the guarantee must be materially accessory (not merely causally related), meaning a relationship of dependency exists, and (3) simultaneous constitution is required. The interpretation of 'material accessoriness' is central - requiring direct dependency rather than indirect causal relationships - and determines whether complex guarantee structures involving counter-guarantees qualify for exclusion.
How do the principles of tax equality and ability to pay apply to Stamp Tax on mortgage counter-guarantees in Portugal?
Constitutional principles of tax equality (Article 13 Portuguese Constitution, Article 4(1) General Tax Law) and ability to pay (Article 103 Constitution, Article 5(2) General Tax Law) require horizontal equity among similarly situated taxpayers and taxation according to economic capacity. In Stamp Tax on mortgage counter-guarantees, these principles are invoked when arguing that taxing both a bank guarantee and its supporting mortgage creates disproportionate taxation on structured guarantee arrangements compared to simple guarantees, violating horizontal equity. Additionally, cumulative taxation on economically linked elements of a single transaction may exceed the taxpayer's actual economic capacity, as the tax burden accumulates on the same underlying economic value. While these constitutional arguments provide supplementary grounds for challenging assessments, Portuguese tax tribunals typically resolve such cases primarily through statutory interpretation of item 10 TGIS and the accessory guarantee exclusion, with constitutional principles serving as interpretive guides favoring constructions that avoid disproportionate or duplicative taxation.