Summary
Full Decision
ARBITRAL DECISION
CAAD: Tax Arbitration
Case No. 69/2014 – T
Subject matter: Stamp Duty – exemption; Article 7, paragraph 1, subsection d), Stamp Duty Code.
The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Paulo Ferreira Alves and Jorge Carita, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree as follows:
I – REPORT
On 28 January 2014, "A" - S.G.P.S., S.A, a legal person …, registered under the same number at the Commercial Registry Office of …, with registered office at Largo …-… Funchal, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LRAT), seeking a declaration of illegality of the Stamp Duty assessment in the amount of EUR 136,797.00, and of the implied rejection of the ex officio review request submitted by the Applicant on 1/7/2013, which was decided against her.
To substantiate its request, the Applicant alleges, in summary, that it is exempt from the assessed tax, by virtue of the provisions of Article 7/1/d) of the Stamp Duty Code.
On 29 January, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.
The Applicant failed to appoint an arbitrator, whereby, pursuant to the provisions of subsection a) of paragraph 2 of Article 6 and subsection a) of paragraph 1 of Article 11 of the LRAT, the President of the Deontological Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
On 14 March 2014, the parties were notified of these appointments, having manifested no intention to challenge any of them.
In accordance with the provisions of subsection c) of paragraph 1 of Article 11 of the LRAT, the collective Arbitral Tribunal was constituted on 9 April 2014.
On 19 May 2014, the Respondent, duly notified for this purpose, filed its response defending itself solely by way of exception.
Having complied with the adversarial principle concerning the matter of exception, taking into account the specificities of the concrete situation, it appeared appropriate to this Tribunal to issue forthwith a partial ruling limited to the questions of exception raised in the proceedings by the Tax Authority, whereby a decision was rendered on 30 June holding the exceptions raised to be without merit, in the following terms:
"For purposes of the present decision, the following facts are hereby established:
1- The subject matter of these proceedings is the assessment of stamp duty in the amount of EUR 137,797.00 (one hundred thirty-six thousand seven hundred ninety-seven euros), assessed upon the establishment of a unilateral mortgage by "B" - Hotel Investment Company, S.A., a company dominated by the Applicant, with registered office in Lisbon, at Rua …, … - …, over various immovable properties situated in the Parish of …, Municipality of …, on 27 November 2012, to guarantee timely and punctual performance of the obligations for repayment of capital and payment of interest owed by the Applicant by virtue of an issue of Bonds.
2- The said tax was assessed by the notary of the Notarial Office of "C", located at …, No. …, …, Lisbon.
3- The Applicant has its registered office in the Autonomous Region of Madeira (ARM).
The facts established as proven derive from the documentary evidence contained in the proceedings.
The Tax Authority argues, in summary, that being the Applicant a legal person with registered office in the ARM, it will be the respective Regional Government (RGM) that is the active subject of the tax legal relationship at issue in these proceedings.
Now, having that entity not acceded to the arbitral jurisdiction of the CAAD, the arbitral tribunals operating in this Centre, in the perspective sustained by the Tax Authority, would be incompetent to review the legality of the disputed tax act.
Furthermore, being the active subject of the controversial tax legal relationship the RGM, there would be verified in the proceedings, also in the perspective sustained by the Tax Authority, a situation of passive illegitimacy, since it is this [the Tax Authority], and not that [the RGM], that now assumes the position of Respondent.
Let us see then.
As to the applicable legal framework, according to Article 21 of the Law on Finance of the Autonomous Regions (Organic Law 1/2007, of 19 February, which repealed Law 13/98 of 24 February and which was itself subsequently repealed by Organic Law 2/2013, of 2 September):
"1 - Stamp duty constitutes revenue of each Autonomous Region owed by taxpayers referred to in paragraph 1 of Article 2 of the Stamp Duty Code that:
a) Have registered office, effective management, permanent establishment or tax domicile in the Autonomous Regions;
b) Have registered office or effective management in the national territory and possess branches, delegations, agencies, offices, installations or any forms of permanent representation, without separate legal personality in the Autonomous Regions.
2 - In the situations referred to in the preceding paragraph, the revenues of each Autonomous Region are determined, with necessary adaptations, in accordance with the territorial rules provided in paragraphs 1 and 2 of Article 4 of the Stamp Duty Code, concerning tax events occurring in those Regions, with taxpayers required to discriminate the tax owed in their respective tax returns."
The ownership of Stamp Duty revenues, on the part of the ARM, is defined, not only by paragraph 1 of the article just transcribed – which is the only one cited by the Tax Authority – but rather by the combination of this norm with that of paragraph 2.
Now, by performing such combination it is verified that only revenues arising from tax events occurring in the respective territory will be revenues of the ARM, based on the territorial rules provided in paragraphs 1 and 2 of Article 4 of the Stamp Duty Code.
In any case, things could not be otherwise, under pain of, given the broad scope of the provision of paragraph 1 of Article 21 cited, a large portion, if not the majority, of Stamp Duty revenues being allocated to the ARM. In effect, if it were understood that all Stamp Duty owed by taxpayers belongs to the ARM, as the Tax Authority seems to argue, such as those:
a) Having registered office, effective management, permanent establishment or tax domicile in the Autonomous Regions;
b) Having registered office or effective management in the national territory and possessing branches, delegations, agencies, offices, installations or any forms of permanent representation, without separate legal personality in the Autonomous Regions.
Then the Stamp Duty owed by all taxpayers with activity at the national level would be destined to that Region, since such taxpayers would naturally, as a rule, have at least one form of permanent representation therein.
In this manner, the only reasonable reading, which moreover accords with the literal text of the norms in question, is, as stated, that only revenues arising from the said group of taxpayers will be revenues of the ARM, provided they arise from tax events occurring in the respective territory, based on the territorial rules provided in paragraphs 1 and 2 of Article 4 of the Stamp Duty Code.
In the case of the present proceedings, the tax event occurred, notoriously, in the territory of the Mainland, and not of the ARM, whereby the tax to which it gave rise should not be, from the outset and independently of anything else, considered revenue of that region.
Proceeding further, and according to Article 51 of the said LFAR:
"1 - Regional administrative competences, in tax matters, to be exercised by the respective regional governments and administrations, comprise:
a) The fiscal capacity of the Autonomous Regions to be active subjects of taxes collected therein, whether of regional or national scope, in accordance with paragraph 2; (...)".
The norm transcribed confirms, precisely, what has just been stated, by providing that the AARs may be active subjects of taxes, whether of regional or national scope, provided they are collected therein, which, manifestly, was not the case, since we are dealing with a tax of national scope – Stamp Duty – collected on the Mainland.
Accordingly, and in summary, it is understood that the Tax Authority is not correct when it states that the RGM is the active subject of the controversial tax legal relationship.
Furthermore, as the Applicant correctly points out, notwithstanding that it bears the burden of the tax which it contests, pursuant to paragraphs 1 and 3, subsection e), of Article 3 of the CIS [Stamp Duty Code], the taxpayer thereof is the notary who executed the deed, pursuant to subsection a) of paragraph 1 of Article 2 of the same Code, who, as determined above, is registered office at … No. …, …, Lisbon, not fitting, as such, within any of the provisions of paragraph 1 of Article 21 of the LFAR.
It is also noted, taking into account the reference made by the Tax Authority to Article 1/2 of Decree-Law 18/2005 of 18 January, that one thing is the administration and management of taxes, another is the administration and management of the tax revenues generated by them.
As to paragraph 1 of the same Article 1, also cited by the Tax Authority, it is understood that it shall only entail the transfer to the ARM of the fiscal attributions and competences proper to the Finance Directorate of the Autonomous Region of Madeira and all services dependent thereon, and not other competences exercised by delegation or any form of representation of other bodies.
Nothing stands in the way of what has just been stated either Joint Order No. 309-F/2005, of 19 April, or Regional Regulatory Decree No. 2/2013/M, since such legislation refers solely and exclusively, as could not be otherwise, to the competences which, under the Law of the Republic, are conferred upon the ARM.
For all that has been set forth, there being neither – nor legally ought there to be – in question in these proceedings any revenue legally committed to the ARM, and it not being – nor legally ought it be – the RGM a taxpayer of the controversial tax legal relationship, there is equally verified no unconstitutionality, contrary to what was sustained by the Tax Authority (Article 35 of its response).
It is thus concluded, in summary, that none of the arguments invoked by the Tax Authority is capable of supporting either the exception of material incompetence of this arbitral tribunal to review the matter sub iudice, or the exception of passive illegitimacy, whereby the same should be held to be without merit."
Subsequently, both parties, having been notified for this purpose, came before these proceedings to communicate that they waived the holding of the meeting referred to in Article 18 of the LRAT, whereby the holding of the first meeting of the Arbitral Tribunal, in accordance with and for the purposes of the provisions of the said article of the LRAT, was dispensed with, taking into account that, in this case, none of the purposes legally entrusted to it were present, and that the arbitral procedure is governed by the principles of procedural economy and prohibition of unnecessary acts.
Having been granted a period for submission of written arguments, the Applicant remained silent, whilst the Tax Authority exercised this right, submitting its position on the substantive question arising in these proceedings.
A period of 30 days was fixed for rendering a final decision, following the submission of arguments by the Tax Authority, which period was subsequently extended until the end of November of the present year.
The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, paragraph 1, subsection a), 5 and 6, paragraph 1, of the LRAT.
The parties have capacity and standing to sue, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LRAT and Article 1 of Order No. 112-A/2011, of 22 March.
The proceedings do not suffer from any defects of nullity.
Thus, there is no obstacle to review of the merits of the case.
Everything having been considered, it falls to render
II. DECISION
A. MATTERS OF FACT
A.1. Facts established as proven
1- Following the approval of a bond loan in the total amount of €20,000,000.00 (twenty million euros), the respective bonds were placed under a placement contract with subscription guarantee entered into between the Applicant and "D" ("D").
2- "D" was mandated to represent the Applicant in the said process, namely to represent it before the Securities Market Commission, "E" – Central Securities Depository and Centralized Clearing System Management Company, S.A and the National Coding Agency, and was also appointed as paying agent for amounts relating to interest and capital repayments owed to the holders of the Bonds.
3- The issue of the Bonds occurred on 11 December 2012.
4- The crediting or "delivery" of the quantity of Bonds issued in the account of financial intermediary opened by "D" with the CVM was carried out at "E".
5- By virtue of this operation, the issue of the Bonds was recorded in the Central Securities Depository ("CVM"), a centralized securities system managed by "E" - Central Securities Depository and Centralized Clearing System Management Company, S.A., in accordance with the provisions of the Regulation of "E" No. …/2000, as amended ("CVM Regulation"), and "E" was assigned to the recording a code … and to the issue of the Bonds the international securities identification code (ISIN) PT….
6- To guarantee timely and punctual performance of the obligations for repayment of capital and payment of interest owed by the Applicant by virtue of the issue of the bonds, "B" - Hotel Investment Company, S.A., as a company dominated by the Applicant, established a unilateral mortgage by means of a public deed executed on 27 November 2012 over various immovable properties identified in that deed, including capital, interest and expenses, up to the maximum amount of € 27,359,400.00 (twenty-seven million three hundred fifty-nine thousand and four hundred euros).
7- For the establishment of the mortgage, the amount of € 136,797.00 (one hundred thirty-six thousand seven hundred ninety-seven euros) was assessed as Stamp Duty, an amount which the Applicant understood not to be owed, having for this purpose submitted, on 1/7/2013, a request for ex officio review, which was not decided within the legally prescribed period for such purpose.
A.2. Facts established as not proven
With relevance to the decision, there are no facts that should be considered as not proven.
A.3. Reasoning regarding the matters of fact proven and not proven
Regarding matters of fact, the Tribunal need not rule on all that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and discriminate the proven from the unproven matters (see Article 123, paragraph 2, of the CPPT and Article 607, paragraph 3 of the CPC, applicable by virtue of Article 29, paragraph 1, subsections a) and e), of the LRAT).
In this manner, the relevant facts for adjudication of the case are chosen and delineated in function of their legal relevance, which is established in light of the various plausible solutions of the question(s) of Law (see former Article 511, paragraph 1, of the CPC, corresponding to current Article 596, applicable by virtue of Article 29, paragraph 1, subsection e), of the LRAT).
Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the procedural file joined to the proceedings, the facts listed above were considered proven, with relevance to the decision.
B. ON THE LAW
Before proceeding with the analysis of the substance of the question, it is necessary to make reference to the exception of illegitimacy of the Applicant, raised again (now with different grounds) by the Respondent.
Saving respect for other opinions, it is understood that the allegation in question is untimely and is barred by res judicata formed by the partial decision rendered on 30 June 2014, which already reviewed the question of the legitimacy of the Applicant.
In effect, moreover, Article 18 is unequivocal in the sense that the review of the matter of exception, and consequently the respective allegation, occurs prior to the phase of submission of arguments.
Moreover, it could not be otherwise, given the principle of the successive character of assertions of law in tax proceedings, there would be no possibility for the applicants to rule on the matter and exception.
Furthermore, in the proceedings there was no order which, within the powers of free determination of procedural management by the Tribunal, disposed differently in this matter.
This does not mean that matters of official cognizance, as is the case of legitimacy, cannot/should not be known by the Tribunal, with respect to the adversarial principle, and even if incidentally raised by the parties. However, and in this case, once a partial decision on the matter of exception at issue in these proceedings has been rendered, including the legitimacy of the Applicant, it is understood that res judicata will have already been formed in that respect, whereby this Tribunal is barred from knowing such question, as now (re)raised by the Tax Authority.
Proceeding then to the substance of the question, the subject matter of the present proceedings is the application of the provision of Article 7/1/d) of the Stamp Duty Code, which provides that:
"1 - The following are also exempt from the tax: (...)
d) Guarantees inherent in operations carried out, recorded, settled or cleared through an entity managing regulated markets or through an entity indicated or authorized by it in the exercise of legal or regulatory power, or also through an entity managing organized markets registered with the CMVM, which have as their object, directly or indirectly, securities of a real or theoretical nature, rights equivalent thereto, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies;".
The Applicant understands that such provision exempts it from the tax assessed against it and against which it objects in these proceedings, with the Tax Authority arguing, precisely, the contrary.
Let us see then.
As the Tax Authority precisely points out, the burden of proof in the matter with which we are concerned rests upon the Applicant. In compliance with the provisions of Article 74/1 of the General Tax Law, being the Applicant the one who seeks to avail itself of the regime of the legal norm transcribed, it will be against it that decision must be rendered, should the prerequisites of such norm not be duly proven in the proceedings.
For a guarantee, in terms of the normative in question, to be exempt from Stamp Duty, it will be necessary that:
a) it be inherent in operations carried out, recorded, settled or cleared through:
i. an entity managing regulated markets;
ii. an entity indicated or authorized by an entity managing regulated markets, in the exercise of legal or regulatory power;
iii. an entity managing organized markets registered with the CMVM.
b) and have as their object, directly or indirectly, securities of a real or theoretical nature, rights equivalent thereto, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies.
The requirement alluded to in subsection b) above is unanimously recognized by both parties as being, in this case, met. The guarantee in question – the mortgage – is intended to cover the Applicant's liabilities in the context of a bond loan, and as is well known, bonds are securities.
Accordingly, it falls to determine only whether, in light of the facts established as proven, it is demonstrated that the operation relating to the securities that gave rise to the guarantee taxed by the assessment now in question was carried out, recorded, or cleared through one of the entities described in points a)i. or a)ii. above.
It being established as proven that the operation in question was recorded at "E", having been assigned by it "the code … and to the issue of the Bonds the international securities identification code (ISIN) PT…."[1], it remains to ascertain whether that entity – "E" – is or is not:
i. an entity managing regulated markets;
ii. an entity indicated or authorized by an entity managing regulated markets, in the exercise of legal or regulatory power; or
iii. an entity managing organized markets registered with the CMVM.
The provision now under review refers directly to concepts relating to securities markets whose central regime is established in the Securities Code.
Upon examination of the said legislation, it is verified that, while it is relatively easy to obtain a definition of "regulated markets," no definition is provided therein of what "organized markets" are.
Thus, while the first of the concepts is of easy and immediate comprehension – organized markets will be those that correspond to the respective definition in the Securities Code – the second requires some doctrinal elaboration.
As António Soares[2] states, "For the new Securities Code the major distinction is now, similarly to what already occurs with Directive 93/22/CEE (Investment Services Directive), between regulated securities markets and other organized markets.".
Continuing with the same author:
"Beyond regulated markets, the new Securities Code also provides for the possibility of the existence of other organized securities markets, which shall function in accordance with the rules that are freely established for this purpose by the respective managing entity. Contrary to what occurs with regulated markets, whose creation depends on authorization by the Minister of Finance, to be granted by Order, the constitution of unregulated organized markets becomes free, also moving away here the new Securities Code from the Securities Market Code which made the creation of any secondary securities market dependent on prior authorization by the Minister of Finance. The creation of unregulated markets thus ceases to be subject to any authorization, with its functioning depending only on prior control of its legality by the CMVM, which shall occur at the moment registration with that entity should be carried out. The new Securities Code also admits the creation of organized markets in which there is direct intervention by institutional investors who will assume, for this purpose, the status of members of that markets – paragraph 3 of Article 203 – of the new Securities Code or of markets in which the traditional function of members may be exercised by the respective managing entity – paragraph 6 of Article 203 of the same legislation."
It is in this context that Article 198 of the Securities Code provides that:
"1 - The following organized forms of trading in financial instruments are permitted to function in Portugal, without prejudice to others determined by the CMVM by regulation:
a) Regulated markets;
b) Multilateral trading systems;(...) "[3]
It is verified, therefore, that "E" is not an entity managing regulated or organized markets[4]. The question will arise as to whether it is an "entity indicated or authorized by an entity managing regulated markets, in the exercise of legal or regulatory power.".
The concept of "indicated or authorized" is not derivable from legislation relating to securities markets and therefore must be constructed by the interpreter.
In such hermeneutic process, account must be taken of the context of the norm to be interpreted which refers to "operations carried out, recorded, settled or cleared through an entity managing regulated markets".
Now, as the Applicant moreover points out, within the framework of the current system of organization of securities markets, and as will be seen below, entities managing regulated markets are prohibited from exercising cumulatively the activities of Management of Centralized Systems, Clearing and Settlement, which form the object of "E"'s corporate purpose.
Accordingly, from the outset, the reference in the provision in question of the Stamp Duty Code to settlement and clearing through an entity managing regulated markets is to be regarded as outdated in relation to the legal reality to which it is directed.
Complementarily, the interpretation of the concepts of "indicated or authorized" should be understood as referring to a functionally close relationship, within the framework of the securities markets system in force.
In that sense, shall be considered as indicated or authorized by entities managing regulated markets, those which, within the framework of the organizational functioning of the regulated market, are in a high degree of integration with the managing entity.
Now, it is public and notorious – being revealed, moreover, by a simple electronic search, and externalized in the various published regulations – that "E", in addition to being held (at the date of the tax event in question in the proceedings) 100% by Euronext (an entity managing a regulated market[5]), is the operator of the settlement system for operations carried out by that entity in the regulated market whose management is entrusted to it.
Now, Article 207/5 of the Securities Code provides that:
"Members of a regulated market and multilateral trading system may designate the settlement system for operations carried out by them in that market or system if:
a) There exist links and agreements between the designated settlement system and all systems or infrastructures necessary to ensure efficient and economic settlement of the operation in question; and
b) The CMVM does not object on the grounds that the technical conditions for settlement of operations carried out in the market or system through a settlement system different from that designated by the managing entity of that market or system permit harmonious and orderly functioning of the financial instruments market."[6]
Being, therefore, "E" the manager of the settlement system for operations carried out in the regulated market whose management is entrusted to Euronext, designated by it within the scope of the legal power which the said Article 207/5 confers on it, it is thus concluded that "E" will fulfill the legal requirement of constituting an "entity indicated or authorized by an entity managing regulated markets in the exercise of legal or regulatory power.".
Thus, it being shown that the prerequisites of Article 7/1/d) of the Stamp Duty Code are fulfilled, and the Applicant consequently benefiting from the exemption established therein, the present arbitral request should be held to be well-founded.
C. DECISION
Whereby this Arbitral Tribunal decides as follows:
a) To hold the arbitral review request well-founded and, in consequence, to annul the Stamp Duty assessment that is the subject matter of these proceedings, with all legal effects flowing therefrom;
b) To condemn the Tax Authority in the costs of the proceedings, in the amount of €3,060.00.
D. Value of the proceedings
The value of the proceedings is fixed at €136,797.00, in accordance with Article 97-A, paragraph 1, subsection a), of the Code of Tax Procedure and Process, applicable by force of subsections a) and b) of paragraph 1 of Article 29 of the LRAT and of paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The arbitration fee is fixed at €3,600.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax Authority, since the request was only entirely well-founded, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the LRAT, and Article 4, paragraph 4, of the cited Regulation.
Let notification be made.
Lisbon
30 November 2014
The Presiding Arbitrator
(José Pedro Carvalho - Rapporteur)
The Arbitrator Member
(Paulo Ferreira Alves)
The Arbitrator Member
(Jorge Carita)
Text prepared by computer, in accordance with paragraph 5 of Article 131 of the CPC, applicable by reference of subsection e) of paragraph 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.
The wording of the present decision is governed by former orthography.
[1] This is not a matter of any "equivalence" to registration. Recording is an act of registration, as are annotation and cancellation, for example. It is thus considered that recording presupposes, precisely, a register where it occurs, and in this case, such registration is expressly referred to as such in Notice 3/2004 of "E".
A different matter, which is the one addressed hereinafter, is whether "E" is or is not an entity of those referred to in the norm under application, which obviously conditions the relevance of the registration for purposes of such norm.
[2] "Regulated Markets and Unregulated Markets" in CMVM Notebooks, No. 7 - April 2000, p. 281 et seq..
[3] Italics ours.
[4] The applicant itself recognizes this, in Article 51 of its Initial Request.
[5] See http://web3.cmvm.pt/sdi2004/mercados/ficha_sociedade.cfm?num_ent=%25%23TO\%23ML .
[6] Italics ours.
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