Process: 779/2014-T

Date: April 28, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

Process 779/2014-T addresses the critical issue of Stamp Tax classification for intercompany loans under item 17.1 of the General Stamp Tax Table (TGIS) in Portugal. The case establishes that the determinability of credit periods must be assessed at the moment the tax obligation arises, not retroactively. The tribunal clarified that item 17.1.4 of TGIS applies to credits used in current accounts, bank overdrafts, or any form where the period is not determined or determinable, regardless of whether they are short or long-term credits. The key criterion is the non-determinability of the credit period, not its duration. In this case, group companies provided loans to AA... SGPS, SA without written contracts. When the Tax Authority requested information during inspections, taxpayers only stated the loans were for 'integrated management of the group's financial resources,' without specifying foreseeable duration. The tribunal held that under Article 5 of the Stamp Duty Code, the tax obligation is constituted on the last day of each month for credits falling under paragraph g), or on the date of document issuance or fact occurrence under paragraph l). Therefore, the determinability of credit periods must be ascertained based on factual elements available by the month-end when loans occurred, not by waiting to observe actual duration. The tribunal rejected the taxpayers' argument that duration could be determined retroactively after repayment or by counting elapsed time. Furthermore, the tribunal found no violation of the Tax Authority's duty to investigate, noting that taxpayers failed to provide sufficient information about loan purposes that would establish determinable periods, despite being requested to do so under their legal obligation per Article 59(4) of the General Tax Law (LGT). This decision has significant implications for intercompany financing structures and Stamp Tax compliance in corporate groups.

Full Decision

of invalidating the act derived from that initial qualification of the contracts as current account, a defect being able to exist, on this matter, only if the contracts cannot be qualified as "means where the period is not determined or determinable."

Therefore, one must consider the second question, which is to determine at what moment one should consider whether, in credit contracts, the period is determined or determinable, for the purposes of that paragraph g) of article 5 of the CIS and also item 17.1.4 of the General Schedule of Stamp Duty, which refers to the rate applicable to "credit used in the form of a current account, bank overdraft or any other form where the period of use is not determined or determinable."

3.2. Issue of Determinability of the Period of Use of Credits and Violation of the Duty to Investigate

Credits covered by item 17.1.4 of the GTIS are not necessarily short-term credits: the rate is what is equal to short-term credits, but no temporal limit follows from the text of this rule.

In fact, the prerequisite for the application of the rate provided in this item 17.1.4 is not the reduced duration of credit, as is the case in item 17.1.1, but rather the non-determination or non-determinability of the period of credit use.

In the case at hand, it does not follow from the evidence produced that the credits had determined periods, so that the classification under item 17.1.4 will depend on their periods not being determinable.

The thesis of the Requesters is, in summary, that the assessment of the determinability of the period of use of credits can be made at any time; specifically, with respect to credits that have already been repaid, the Requesters understand, in summary, that the duration was determinable through the post-hoc observation of the duration they had and, as for those not yet repaid, the determinable duration is, at least, the duration corresponding to the period already elapsed.

This thesis is not compatible with the regime for the constitution of stamp duty obligations that results from the aforementioned paragraphs g) and l) of article 5 of the Stamp Duty Code.

Indeed, in credit operations, the obligation is constituted either on the last day of each month [in cases that fall under paragraph g)] or "on the date of issuance of the documents, titles and papers or the occurrence of the facts," [in situations that fall under paragraph l)], as this latter rule has residual application, covering all other situations of incidence of stamp duty not provided for in the preceding paragraphs of the same article.

That is, in light of the aforementioned paragraphs g) and l) of article 5, it must be concluded that the moment at which one must determine whether the period of credit use is determinable is the moment when they are carried out or, at the latest, the end of the respective month, in which the tax obligation arises or not.

Therefore, since the constitution of each type of stamp duty obligation necessarily depends on the verification of their respective prerequisites, it cannot be concluded that, by this last day of each month, these prerequisites of the respective obligations had to be determined, with facts occurring after the last days of each month in which the loans occurred being irrelevant for determining them.

Thus, since it was not proven that any of the loans had a determined period, the possibility of determining the foreseeable duration of each of the loans had to be ascertained based on the factual elements available until the last day of each month in which they occurred, as it results from the aforementioned legal regime that the ascertainment of all relevant elements to define the tax obligation could not be deferred to a moment after that last day. Therefore, one could not wait indefinitely to establish the duration that the loans came to have, but rather had to determine, at the end of each month in which the transactions occurred, whether the duration of credit use could be determined.

It is from this perspective that the alleged violation of the duty to investigate must be assessed.

The Tax and Customs Authority, during the inspections, asked each of the Requesters to provide copies of the contracts relating to loans to AA… SGPS, SA and "if they do not exist, information about the purpose of these loans."

The written contracts requested would be the normal and appropriate means to ascertain the periods of credit use, since, given their value, they should have been reduced to writing (article 1143 of the Civil Code).

The Tax and Customs Authority went further and, anticipating the absence of written contracts, requested information about the purpose of the loans to AA… SGPS, S.A., as the Requesters themselves acknowledge in article 54 of the request for arbitral decision.

The Requesters' response was only that "it is a matter of integrated management of the group's financial resources," which does not reveal in the slightest that these were medium or long-term loans nor give any indication about their foreseeable duration.

Therefore, if the Requesters had anything to inform the Tax and Customs Authority about the purpose of the loans to AA… SGPS, S.A. that could help ascertain their foreseeable duration, they should have provided this information about the purpose of the loans, in compliance with the obligation imposed on them by article 59, section 4, of the LGT to provide clarifications that the Tax Administration "requests from them about their tax situation, as well as about the economic relationships they maintain with third parties."

However, even without the collaboration of the Requesters, the Tax Administration found in both inspections that "the need to finance AA… SGPS and the shareholders of this company results from transactions in shareholdings between former and new shareholders of AA… SGPS, in the years 2007 and 2008," a conclusion that was not contradicted by the Requesters in the present proceedings.

The purpose of the loans could be a way to ascertain, ab initio, their presumed duration, but, given the information provided by the Requesters and what the Tax Administration was able to ascertain about the purpose for which the loans were intended, it is manifest that there was no basis whatsoever to conclude that their duration was determinable, at the moments when the loans were made and until the end of each month in which the transactions were carried out.

In this context, the Requesters cannot attribute to the Tax and Customs Authority a shortfall in investigation regarding the determinability of the periods of credit use; rather, they must attribute to themselves the hypothetical lack of additional information that existed and would have been sufficient to determine the period of the loans at the moments when the tax obligations were constituted, pursuant to the aforementioned article 5.

As the Requesters correctly state in articles 56 and 57 of the request for arbitral decision, the fact that a loan contract was not reduced to writing does not mean that there was no agreement regarding the period in which the loaned amounts should be repaid, that is, that the period of the grant of such loans was not determined or that it was not determinable.

However, it was not disclosed to the Tax and Customs Authority during the inspections nor proven during this process that there was any agreement about the period of credit use and, not even currently, after the production of evidence in the present arbitral proceedings, is it apparent how such duration could have been foreseeable at the moments of constitution of the tax obligations, pursuant to the aforementioned article 5 of the CIS, based on the mere knowledge that the loans were for the need to finance AA… SGPS and the shareholders of this company, derived from transactions in shareholdings or was a matter of "integrated management of the group's financial resources," as the Requesters informed, without explaining anything that could be relevant to ascertaining the duration of each of the credits.

This is sufficient to conclude that the conduct of the Tax and Customs Authority deserves no criticism either at the level of the duty to investigate or at the level of the judgment made regarding the non-determinability of the period of the loans made by the Requesters to AA… SGPS, S.A.

Indeed, once the possibility is excluded that the determinability relevant for the purpose of classification under item 17.1.4 of the GTIS can be ascertained beyond the moment referred to in paragraph g) of article 5 of the CIS, it could only be concluded that the duration of credit use was determinable if it were demonstrated that there was a way to determine it and, in the case at hand, nothing more was proven regarding the credits in question than their respective amounts and the creditor and debtor entities and a purpose of the credits from which nothing can be inferred about their hypothetical duration.

Moreover, it was not even alleged in the present proceedings that, at that crucial moment for ascertaining the duration of credit use, there was any way to determine it, namely through the purpose for which they were intended, which, except for the one that the Tax and Customs Authority indicates having ascertained, remains unknown.

Therefore, it must be concluded, on the one hand, that the period of use of the credits referred to, in addition to not being determined, was not determinable at the moment when it was necessary to ascertain this period for classification in one of the various situations provided for in item 17.1 of the GTIS. And, on the other hand, no shortfall in the diligence of the Tax and Customs Authority is demonstrated.

Consequently, the generality of credits are classifiable under item 17.1.4, as the Tax and Customs Authority correctly understood.

It is thus concluded that the challenged assessment acts do not suffer from the defects that the Requesters attribute to them.

4. Restitution of Amounts Paid and Compensatory Interest

Since the requests for annulment of the assessment acts are unsuccessful, the requests for restitution of amounts paid and payment of compensatory interest are also unsuccessful, as they are predicated on the desired annulment.

5. Decision

Accordingly, the Arbitral Tribunal hereby agrees to:

a) Dismiss as unfounded the requests for a declaration of illegality of the Stamp Duty assessments referred to in paragraphs w) and ee) of the established statement of facts;

b) Dismiss as unfounded the requests for restitution of amounts paid and payment of compensatory interest;

c) Dismiss the Tax and Customs Authority from the respective requests.

6. Value of the Case

In accordance with article 306, section 2 of the CPC, article 97-A, section 1, paragraph a) of the CPPT, and article 3, section 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 180,441.83.

7. Costs

Pursuant to article 22, section 4 of the RJAT, the amount of costs is fixed at € 3,672.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Requesters.

Lisbon, 28 April 2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(José Luís Ferreira)

(Paulo Lourenço)

[1] Although only the document relating to the notification of A…, S.A. was attached by the Requesters, the Requesters state in article 54 of the request for arbitral decision that the requests were directed to both. However, the administrative file relating to the two inspections contains two copies of the same letter in the name of A…, S.A. only, with which the documents relating to the two inspections may have been sent, since the bank documents that accompanied each of these copies are different.

[2] Decision of the Supreme Administrative Court of 10-5-2000, case no. 39073, published in Appendix to the Official Gazette of 09-12-2002, page 4229.

Along the same lines, see the decision of the Plenary of the Supreme Administrative Court of 28-10-2004, case no. 28055, in which it was held that "having the contentiously challenged act a plurality of grounds, the invalidity of one of them does not prevent the court from deciding on the remainder and only in the event it concludes that all of them are invalid can and should it declare the act null or voidable."

Frequently Asked Questions

Automatically Created

What is the scope of Verba 17.1 of the General Stamp Tax Table (TGIS) regarding credit utilization in Portugal?
Item 17.1 of the TGIS governs Stamp Tax on credit operations in Portugal. Specifically, item 17.1.4 applies to credit used in current accounts, bank overdrafts, or any form where the period of use is not determined or determinable. The applicable rate equals that for short-term credits, but no temporal limitation exists. The decisive criterion is not the credit's short duration but whether the period is determinable at the moment the tax obligation arises under Article 5 of the Stamp Duty Code, typically the last day of the month when the credit operation occurs.
Are intercompany loans between group companies subject to Stamp Tax under Portuguese tax law?
Yes, intercompany loans between group companies are subject to Stamp Tax under Portuguese law. Process 779/2014-T confirms that loans from group companies to holding companies (SGPS) fall within the scope of Stamp Tax. The classification depends on whether the credit period is determined or determinable. Without written contracts or sufficient evidence establishing determinable periods at the time of the loan, such intercompany credits are taxed under item 17.1.4 of TGIS as credits with non-determinable periods, regardless of group affiliation or the purpose of integrated financial management.
How does the CAAD arbitral tribunal assess Stamp Tax liquidations on shareholder loans to SGPS holding companies?
The CAAD tribunal applies a temporal criterion: whether the credit period was determinable at the moment the tax obligation arose (month-end per Article 5 of the Stamp Duty Code), not retroactively. The tribunal examines: (1) existence of written contracts specifying loan terms; (2) information about loan purposes that could indicate foreseeable duration; (3) whether taxpayers fulfilled their duty under Article 59(4) of the LGT to provide clarifications; (4) whether the Tax Authority adequately investigated. In shareholder loan cases, vague explanations like 'integrated financial management' without specific duration indicators are insufficient to establish determinability, resulting in classification under item 17.1.4 of TGIS.
Can taxpayers claim reimbursement and compensatory interest after annulment of Stamp Tax assessments in Portugal?
While the provided excerpt from Process 779/2014-T does not specifically address reimbursement procedures and compensatory interest entitlements, Portuguese tax law generally provides that taxpayers who successfully challenge tax assessments through CAAD arbitration or administrative/judicial proceedings are entitled to reimbursement of amounts unduly paid plus compensatory interest. The specific rules are governed by the General Tax Law (LGT) and the Stamp Duty Code (CIS), with compensatory interest calculated from the payment date until reimbursement. Taxpayers should file reimbursement requests following the annulment decision, and interest accrues automatically on amounts determined to have been illegally collected.
What is the arbitration procedure at CAAD for challenging Stamp Tax (Imposto do Selo) liquidations?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging Stamp Tax liquidations allows taxpayers to request arbitral review as an alternative to judicial courts. The process begins with filing an arbitration request within the legal deadline (typically within the same timeframe as administrative or judicial appeals). The arbitral tribunal is formed, parties submit written arguments and evidence, and hearings may be held if necessary. In Stamp Tax cases, the tribunal examines whether the Tax Authority correctly applied the legal provisions, properly investigated factual circumstances, and respected taxpayers' rights. Decisions address the legality of tax assessments and may result in annulment, confirmation, or modification of the contested liquidations. The CAAD procedure offers a faster, specialized alternative to traditional tax litigation.