Process: 97/2016-T

Date: September 19, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 97/2016-T addressed whether Stamp Tax (Imposto do Selo) applies to guarantees provided in bond issuance transactions under Portuguese tax law. The claimant, A... S.A., challenged a €4,059,390 Stamp Tax assessment levied on guarantees securing a €575 million bond issuance completed in November 2015. The guarantees, including unilateral mortgages constituted by controlled companies, secured obligations up to €676,565,000 covering principal, interest, and expenses. The Tax and Customs Authority assessed Stamp Tax under Item 10.3 of the General Stamp Tax Table (TGIS), which taxes guarantees of obligations regardless of their nature. The claimant initiated tax arbitration proceedings under the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011) seeking annulment of the assessment and payment of compensatory interest. The arbitral tribunal was constituted on May 6, 2016, comprising three arbitrators appointed by CAAD's Deontological Council. The Tax Authority filed a response defending inadmissibility but did not submit administrative proceedings. Key procedural aspects included: acceptance of the arbitration request, proper notification to parties, constitution of a collective arbitral court, and continuation through written pleadings under Article 18 RJAT. The case centered on interpretation of Stamp Tax exemptions potentially applicable to guarantees in securities market transactions, particularly bond issuances regulated under Portuguese securities law and managed through centralized systems like D... (CVM). The bonds were issued by private placement to institutional investors with professional intermediaries including paying agents. This decision is significant for financial institutions and corporations using guarantee structures in capital market operations, clarifying the scope of Stamp Tax obligations on securities-related guarantees and the procedural framework for challenging such assessments through tax arbitration rather than traditional administrative appeals.

Full Decision

ARBITRAL DECISION - CAAD TAX ARBITRATION

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Prof. Doctor Eduardo Paz Ferreira and Dr. A. Sérgio de Matos, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 06-05-2016, agree as follows:

1. Report

A…, S. A., legal entity …, hereinafter designated as "Claimant", which incorporated by merger B…, Financial Credit Institution, S.A., has, in accordance with article 10, no. 2, of the Legal Regime for Arbitration in Tax Matters, approved by Decree-Law no. 10/2011 of 20 January (hereinafter RJAT), in conjunction with the provisions of paragraph d) of no. 1 of article 102 of the Tax Procedure and Process Code ("CCPT"), presented a request for constitution of a collective arbitral court, in which the TAX AND CUSTOMS AUTHORITY is respondent.

The Claimant seeks the annulment of the levy of Stamp Tax in the amount of € 4,059,390.00 on the guarantees provided in the context of the bond issuance by the Claimant and that the Tax and Customs Authority be ordered to pay it compensatory interest.

The request for constitution of the arbitral court was accepted by the President of CAAD and notified to the Tax and Customs Authority on 07-03-2016.

In accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed as arbitrators of the collective arbitral court the undersigned, who communicated acceptance of the appointment within the applicable period.

On 20-04-2016 the parties were duly notified of such appointment and did not manifest the intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11 no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, the collective arbitral court was constituted on 06-05-2016.

The Tax and Customs Authority filed a response defending the inadmissibility of the request for arbitral pronouncement.

The Tax and Customs Authority did not submit administrative proceedings.

By order of 22-06-2016 the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings continue with successive written pleadings.

The parties submitted pleadings.

The parties possess legal personality and capacity, are legitimate and are duly represented (arts. 4 and 10, no. 2, of the same statute and art. 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there is no obstacle to examination of the merits of the case.

No exceptions are raised and there is no obstacle to examination of the merits of the case.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

The Claimant approved the execution of two bond loans in the total amount of € 575,000,000.00 (five hundred and seventy-five million euros), including Bonds A and Bonds B, both with subscription date of 26 November 2015;

The placement of the referred Bonds A and B was carried out by private placement with certain institutional investors, under a placement agreement with subscription guarantee concluded between the Claimant and a banking syndicate (as per subscription agreement attached to the request for arbitral pronouncement as document no. 6, whose content is considered reproduced);

The Claimant mandated Bank C…, S.A. ("C") to, among other matters, represent it before the Securities Market Commission, D…- Settlement Systems Management Company and Centralized Securities Systems, S.A. ("D") and the National Coding Agency;

C… was further appointed by the Claimant as paying agent for the amounts relating to interest and principal amortizations owed to the holders of the Bonds, pursuant to the paying agent agreement relating to the issuance, by private subscription, of the Bonds, concluded on 26 November 2015 (document no. 7 attached to the request for arbitral pronouncement, whose content is considered reproduced);

The issuance of the Bonds occurred on 26 November 2015, with amortization to be carried out by the Claimant by 26 November 2021 in the case of Bonds A and 26 November 2030 in the case of Bonds B (technical data sheets forming documents nos. 8 and 9 attached to the request for arbitral pronouncement, whose contents are considered reproduced);

The physical settlement of the issuance of the Bonds, that is, the crediting or "delivery" of the quantity of Bonds issued in the account of financial intermediary opened by C… in the CVM, was carried out at D… (article 10 of the request for arbitral pronouncement, not contested);

By virtue of such physical settlement, the issuance of the Bonds was recorded in the Securities Clearing Centre ("CVM"), a centralized securities system managed by D…, in accordance with the provisions of the D… Regulation no. …/2000, as amended ("CVM Regulation"), and D… assigned to the issuance of the Bonds the international securities identification code (ISIN) PTFWEAO… and PTFWEBOM.., respectively to Bonds A and Bonds B (printout of the page of information on securities under the management of D… attached to the request for arbitral pronouncement as document no. 10, whose content is considered reproduced and article 11 of the request for arbitral pronouncement, not contested);

On 26 November 2015, to guarantee timely and proper performance of the obligations of capital repayment and payment of interest owed by the Claimant by virtue of the issuance of the Bonds, several guarantees were constituted in favor of the financing entities, including, through a deed executed on the same day, unilateral mortgage by the commercial companies E…, S.A.; F…, S.A.; G…, S.A. and H…, S.A., all of them companies controlled by the Claimant (documents nos. 1 and 2 attached to the request for arbitral pronouncement, whose contents are considered reproduced);

The referred guarantees secure compliance with the Bonds, including principal, interest and expenses, up to the maximum amount of € 676,565,000.00 (six hundred and seventy-six million, five hundred and sixty-five thousand euros);

For the constitution of such guarantees, including the referred mortgage, the amount of € 4,059,390.00 (four million fifty-nine thousand three hundred and ninety euros) was levied by the Notarial Office "Notária I…", on 30-11-2015, through Invoice/Receipt no. FT 0/…, as Stamp Tax, on the basis of Item 10.3 of the TGIS, and the said Notarial Office made the respective payment on 21-12-2015, through document no. … (documents nos. 2, 3 and 4, attached to the request for arbitral pronouncement, whose contents are considered reproduced);

The Claimant paid the amount levied (documents nos. 3 and 4 attached to the request for arbitral pronouncement);

On 22-02-2016, the Claimant presented the request for constitution of the arbitral court that gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

2.3. Grounds for Establishment of Factual Matters

The facts were considered proven on the basis of what was alleged in the request for arbitral pronouncement and the documents attached to it, since no administrative proceedings were submitted and the Tax and Customs Authority does not contest the factual matters alleged.

3. Matters of Law

3.1. The Question Which is the Subject of the Request for Arbitral Pronouncement

In the present proceedings no tax procedure was submitted relating to the contested act.

On the other hand, the only basis found in the act is the reference to "Item 10.3 of the TGIS" which appears in the Invoice/Receipt issued by the Notarial Office "Notária I…".

Item no. 10.3 of the TGIS establishes the following:

  1. Guarantees of obligations, whatever their nature or form, in particular avails, deposits, autonomous bank guarantees, surety, mortgage, pledge and surety insurance, except where materially ancillary to contracts specially taxed in this Table and are constituted simultaneously with the guaranteed obligation, even if in different instrument or title - on the respective value, based on the term, always considering as a new operation the extension of the term of the contract:

(...)

10.3 Guarantees without term or with term equal to or greater than five years 0.6%

In this context, the question which is the subject of the present proceedings is whether the exemption from Stamp Tax provided for in paragraph d) of no. 1 of article 7 of the Stamp Tax Code is applicable to the situation described in the factual matters established, which establishes the following, in the wording given by Law no. 107-B/2003, of 31 December:

d) Guarantees inherent to operations carried out, recorded, settled or cleared through a regulated market management entity or through an entity indicated by such entity or authorized in the exercise of legal or regulatory power, or else through a management entity of organized markets registered in the CMVM, which have as their object, directly or indirectly, securities, of a real or theoretical nature, rights equivalent to them, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies;

In view of the absence of other grounds for the contested act beyond the legal framework, the examination shall be limited to the points on which there is controversy, considering the remaining points as established.

3.1.1. Position of the Claimant

The Claimant concludes its pleadings in the following terms:

  1. On 22 February of the current year the Claimant presented, with the Centre for Administrative Arbitration, a request for constitution of an arbitral court with a view to the annulment of the act of levy of stamp tax no. …, in the amount of € 4,059,390.00 (four million fifty-nine thousand three hundred and ninety euros);

  2. The aforementioned levy occurred as a result of the constitution of a set of guarantees, including a voluntary mortgage on a set of immovable property located in Portugal, intended to guarantee timely and proper performance of the obligations of capital repayment and payment of interest, owed by the Claimant by virtue of the bond loans approved by it in the total global amount of € 575,000,000.00 (five hundred and seventy-five million euros).

  3. It is the Claimant's understanding that the amount levied as stamp tax is not due by virtue of the application of the exemption provided for in paragraph d) of no. 1 of article 7 of the Stamp Tax Code (CIS), as further explained in the request for constitution of arbitral court presented.

  4. The application of the said exemption depends on the verification of two conditions, one subjective condition and one objective condition.

  5. The subjective condition requires that the guaranteed operation be carried out, recorded, settled or cleared through (a) a regulated market management entity; or (b) an entity indicated by a regulated market management company in the exercise of legal or regulatory power; or (c) an entity authorized by a regulated market management company in the exercise of legal or regulatory power.

  6. From the facts alleged by the Claimant in articles 59 to 96 of the request for constitution of arbitral court, it is evident that the issuance of the Bonds resulted in an operation whose recording (through the CVM) and whose settlement (through the CVM and the settlement systems managed by D…) was (and may be in the future) settled by D… through the systems managed by it.

  7. As the Claimant demonstrated in its request for arbitral pronouncement, the said recording and settlement carried out by D… are acts performed by an entity indicated (and therefore authorized) by Euronext Lisbon (which is a regulated market management company) under a power granted to it by Decree-Law no. 357-C/2007, of 31 October.

  8. The objective condition requires that, provided that the subjective eligibility conditions referred to above are met, one of such entities be responsible for carrying out, recording, settling or clearing the guaranteed operations.

  9. As abundantly demonstrated by the Claimant in articles 28 to 58 of the request for arbitral pronouncement, in the concrete case, there are verified not only one, but two contact points on which the application of the exemption rule depends, since not only were the Bonds subject to recording in the CVM, but also their physical settlement was carried out by Interbolsa, through the CVM.

  10. In its response, the TA states that the exemption provided for in paragraph d) of article 7 of the CIS is not applicable to the situation now under analysis, basing itself on different arguments, which in the Claimant's opinion cannot be sustained.

  11. The first argument presented is that the exemption applies only to operations carried out in regulated or organized markets.

  12. However, the Claimant does not understand where the TA derives the consequence that the exemption in question does not apply to operations carried out in non-regulated or non-organized markets, lacking such conclusion of any demonstration or basis.

  13. The rule only states that the operations to which the exemption applies must be carried out, recorded, settled or cleared through a regulated market management entity or through an entity indicated or authorized by such entity.

  14. One thing is to require that the operations be carried out, recorded, settled or cleared through a regulated market management entity and another, quite different, is to require that the operations in question be carried out in a regulated market.

  15. Because, as the TA conveniently ignores, regulated market management companies do not intervene only in operations that take place in a regulated market, and their services can be provided in relation to operations carried out outside such markets.

  16. This results unequivocally from the provisions of article 4 of Decree-Law no. 357-C/2007, of 31 October in which various relevant activities are identified which, in addition to market management, can be exercised by regulated market management companies.

  17. Thus, it is evident that for the purposes of applying the exemption, the recording, settlement or clearing of operations can be carried out by entities that, being indicated or authorized by regulated market management entities, do not manage (nor can manage) regulated markets.

  18. It should also be emphasized that, as previously referred to, in relation to regulated market management entities and as the Claimant had the opportunity to demonstrate in article 47 of the request for constitution of the arbitral court, D… also makes available its settlement systems and the centralized securities system for the recording and settlement of operations on securities carried out outside a regulated market.

  19. Thus, and being clear that it is not within the TA's discretion to consider a legislative intent that does not have in the letter of the law a minimum of verbal correspondence, it is obvious that the requirement alleged by the TA has no legal basis whatsoever.

  20. The second argument contained in the answer presented by the TA (articles 8 to 10), seeks to ignore the technical-legal sense of the term "inherence" when associated with guarantees, attempting through that argumentative path a reconstruction of the concept that is not only incorrect, but through the distortion of the presuppositions of the exemption rule, would end up preventing (in practice) the application of the exemption to any guarantees provided to ensure the performance of the obligations resulting from operations "carried out, recorded, settled or cleared through a regulated market management entity or through an entity indicated or authorized by such entity in the exercise of legal or regulatory power".

  21. The TA's position is based on the erroneous presupposition that there are operations on securities in which the constitution of guarantees constitutes an element of the legal type, without any margin for those interested to structure such operations without the constitution of guarantees, having such understanding no acceptance in the Portuguese legal order. And, more importantly, it cannot be erected as a requirement for the application of the exemption of paragraph d) of article 7 of the CIS.

  22. In the case at hand, the bond investors required the provision of guarantees as an essential and indispensable condition to the financing given to the Claimant, which consented to it, leaving no margin, as there is no question of collision with the limits of private autonomy, for any attempt to control externally the merits of such decision, as the TA seems to intend, by issuing judgments on the necessity or essentiality of the guarantees.

  23. Contrary to what the TA states, in article 27 of the answer, paragraph c) of no. 2 of article 348 of the CSC does not apply to the Claimant, whose company contract has been registered for more than a year, and therefore the guarantees were not provided to comply with no. 2 of article 348 of the CSC, nor are the Bonds guarantees of the type provided for in the cited provision.

  24. As a matter of curiosity, see how in article 28 of the answer, the TA cites a wording of article 349 of the CSC that has not been in force since the amendments introduced to the CSC by Decree-Law no. 26/2015, of 6 February, with the current limits on the issuance of bonds now being set based on the ratio of financial autonomy of the issuer and not on the equity capital of the issuer.

  25. Contrary to what the TA states in article 29 of the answer, the constitution of the guarantees now under analysis had no connection with problems related to the sufficiency or insufficiency of equity capital. Such statement can only be understood by the fact that the TA is referring to a wording of article 349 of the CSC that is no longer in force, which wording, moreover, and contrary to what the TA states in article 29 of the answer, never provided for the constitution of special guarantees in favor of shareholders.

  26. Finally, in relation to the TA's statement in article 33 of the answer, and without prejudice to the refutation already made of the meaning given by the TA to the term "inherent", the essentiality of the guarantees constituted to ensure the performance of the Bonds cannot in any case be determined based on the limits to the issuance of bonds established by article 349, no. 1 of the CSC (it is true that the TA cites article 348, no. 1 of the CSC but no limit to the issuance of bonds is prescribed in this provision). The provision of guarantees constitutes merely an option, among others, available to commercial companies to issue bonds above the limits of article 349, no. 1 of the CSC, and therefore it is not correct to state, as the TA does, that the provision of guarantees for bond issuances "...is only required when its value exceeds the amount referred to in art. 348º, no. 1 of the CSC.".

  27. Concluding, therefore, that the arguments that the TA invokes to refuse the qualification of the guarantees in question as inherent to the bond issuance is based on an incorrect concept of inherence, disregards, absolutely, the concrete characteristics of the operation, resorts to outdated legislation and is based on the total lack of understanding of the functioning of the trading and settlement systems for securities. Issues which will certainly not go unnoticed in the eyes of the Arbitral Court.

  28. The TA still invokes a third and last argument to justify the non-application of the exemption of paragraph d) of article 7 to the situation in dispute, being able in this regard to be read in article 42 that "the provision of the guarantee is only inherent to operations on derivatives (...)".

  29. Such restriction has the least correspondence with the letter of the law which states that the exemption applies to guarantees inherent to operations "which have as their object, directly or indirectly, securities, of a real or theoretical nature, rights equivalent to them, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies"

  30. The issuance of book-entry bonds, which is only constituted with the registration of the individualized accounts of its holders (no. 1 of article 73 of the Securities Code) and which, in the case of securities included in the Securities Clearing Centre, must be preceded by commercial registration (article 47 of the Securities Code) and registration/recording in the Securities Clearing Centre, constitutes an operation which has securities as its object.

  31. The Claimant therefore refutes the position of the TA to the effect that the issuance and subscription of bonds do not constitute operations on securities. This view of the TA is related to the thesis that the exemption of paragraph d) of article 7 of the CIS applies only to operations carried out in a regulated market and is limited to the transfer of securities (see, inter alia, article 10 of the answer), a position which, as the Claimant has already demonstrated, does not withstand analysis of the presuppositions of the exemption.

  32. Even if the TA's argument were to be accepted, which the Claimant does not concede and considers only as a precaution, such argument would only exclude the verification of one of the objective and alternative presuppositions of the exemption: the qualification of the recording of the issuance of the Bonds as a relevant recording for the purposes of paragraph d) of article 7 of the CIS. The TA does not contest the Claimant's assertion that the Bonds were and will be settled through the systems managed by D…, which is sufficient for the application of the Stamp Tax exemption.

3.1.2. Position of the Tax and Customs Authority

The Tax and Customs Authority formulates the following conclusions in its pleadings:

  1. The recording of the issuance is not, contrary to what is alleged by the Author of the request for arbitral pronouncement, an operation on securities;

  2. Rather, it is a condition to be met prior to carrying out operations on securities subject to such formality;

  3. The special guarantees provided in accordance with art. 349º, nº 4, paragraph c), of the CSC, as well as other guarantees voluntarily provided by the issuing entity, are not inherent to any operation on securities and to the issuance of securities;

  4. The provision of guarantee is inherent only to operations on derivative financial instruments and not on securities in general;

  5. The exemption of art. 7º, nº 1, paragraph d) of the Stamp Tax Code applies only, therefore, to guarantees mandatorily constituted in the context of operations on derivative financial instruments with or without term;

  6. This is what results from the historical antecedents of such legal rule, as appear in the present pleadings;

  7. The Author seeks the generalization of an incentive to the development of the capital market to all operations related, even if indirectly, to financial instruments, which is why its claim lacks all legal basis.

3.2. Examination of the Question

3.2.1. Question of the Existence or Not of an Operation Which has Securities as its Object

The Tax and Customs Authority defends, as a first obstacle to the Claimant's claim, that the recording of the issuance of bonds is not, contrary to what is alleged by the Author of the request for arbitral pronouncement, an "operation on securities", being a condition to be met prior to carrying out operations on securities subject to such formality, prior to their introduction to the market.

In the said paragraph d) of no. 1 of article 7 of the Stamp Tax Code there is no reference to "operations on securities", speaking instead of "operations" "which have as their object, directly or indirectly, securities, of a real or theoretical nature, rights equivalent to them, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies".

The constitution of the guarantee which, as the Tax and Customs Authority correctly states, is not an operation on securities.

However, the exemption does not relate to operations on securities, but rather, precisely, to guarantees inherent to operations which have securities as their object, so that the fact that the guarantee is not an operation has no relevance to excluding the application of the exemption.

For this reason, what is relevant for the application of the exemption is to know whether the issuance of bonds, with recording and settlement through one of the entities referred to in that article is an operation of the type provided therein and whether the guarantees are inherent to such operations.

3.2.2. Question of the Inherence of Guarantees to Operations Which Have Securities as their Object

The provision of paragraph d) of no. 1 of article 7 of the Stamp Tax Code refers to "guarantees inherent to operations" "which have as their object, directly or indirectly, securities (...)".

The Tax and Customs Authority defends that the guarantees in question were voluntarily provided by the issuing entity, and therefore are not inherent to any operation on securities and to the issuance of securities, and that "the provision of guarantee is inherent only to operations on derivative financial instruments and not on securities in general".

The Tax and Customs Authority considers that "it results from the expression "inherent", whose restrictive meaning cannot be ignored by the interpreter-applicator of tax law, that such guarantees must be necessary, intrinsic, peculiar or specific to the operations mentioned in that legal provision, being insufficient a merely ancillary relationship, in the sense of non-essential or non-indispensable" and that "the expression "inherence" presupposes, as results from its etymological meaning, a relationship of indissociability or inseparability between two distinct things, in the case, between the provision of the guarantee and an operation on securities", so that "the exemption only covers guarantees that are necessary elements of operations on securities, being insufficient the mere ancillarity between the guarantees and such operations".

The Tax and Customs Authority considers that, in the case in question, the guarantee is merely optional, and therefore does not fall within the provision of that paragraph d) of no. 1 of article 7 of the Stamp Tax Code.

Disagreeing with this argument of the Tax and Customs Authority, the Claimant defends, in summary:

– the position of the TA is based on the erroneous presupposition that there are operations on securities in which the constitution of guarantees constitutes an element of the legal type, without any margin for those interested to structure such operations without the constitution of guarantees, which has no acceptance in the Portuguese legal order;

– the essentiality and indispensability of the guarantees can only be determined based on the concrete characteristics and the terms and conditions of the operation in question;

– in the case at hand, the bond investors required the provision of guarantees as an essential and indispensable condition to the financing given to the Claimant, which consented, within the scope of private autonomy, and the Tax and Customs Authority cannot control externally the merits of such decision, as the TA seems to intend, by issuing judgments on the necessity or essentiality of the guarantees;

– there is no doubt as to the essentiality and indispensability of the guarantees provided for the operation of issuance of the Bonds, nor as to the fact that the guarantees were specifically provided for the operation in question, being for this reason peculiar, that is, inherent to such operation;

– it results unequivocally from the characteristics of the bond issuance operation that the same involved the provision of guarantees, that these guarantees ensure the performance of the Claimant's obligations as a result of the issuance of securities representing debt and that, therefore, the decision of those interested was in the direction of treating the constitution of such guarantees as an indispensable and essential element for the conclusion of the operation and for the financing granted to the Claimant through the subscription and issuance of the Bonds by it.

The meaning of the word "inherent" which is that of "intimately united", "intrinsic" or "inseparable", "which is characteristic of something", "which is an attribute or property of something" ( [1] ), so that the use of such word does not have the scope of expressing mere "ancillarity", which is referred to in item 10 of the TGIS, pointing instead to situations in which it is legally mandatory to provide a guarantee for the practice of operations of the types referred to in paragraph d) of no. 1 of article 7 of the CIS.

In this context, it would be an insuperable argument in favor of the Claimant's thesis what it invokes, regarding the alleged non-existence of any situation of obligation to provide guarantees for the practice of the acts referred to in that rule.

However, the fact is that there have been and are situations in which it is mandatory to provide guarantees in connection with operations which have securities as their object, as results from article 411, no. 4, of the Securities Market Code, approved by Decree-Law no. 142-A/91, of 10 April, in its original wording, and from its article 412 in the wording of Decree-Law no. 196/95, of 29 July, from article 19 of CMVM Regulation no. 5/2007, from article 260 of the Securities Code, in the wordings of Decree-Law no. 486/99, of 13 November, and Decree-Law no. 40/2014, of 18 March, from article 261 of the same Code in the wording of Decree-Law no. 357-A/2007, of 31 October (invoked by the Tax and Customs Authority) and also from Regulation (EU) no. 648/2012 of the European Parliament and of the Council, of 4 July 2012, complemented by Decree-Law no. 40/2014, of 18 March, and Regulation (EU) no. 575/2013, of the European Parliament and of the Council, of 26 June 2013.

The situations in which it is mandatory to cover, through guarantees, risks of operations which have securities as their object, are those in relation to which it is appropriate to state that the guarantees are "inherent" to the operations.

In the absence of other elements that would lead to the choice of the less immediate sense of the text, the interpreter should opt, in principle, for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, in the presupposition (imposed by no. 3 of article 9 of the Civil Code, which stands until demonstrated to be incorrect) that the legislator knew how to express his intent in adequate terms. ( [2] )

In the case in question, there are no elements that point in the direction that the expression "guarantees inherent" was incorrectly used, to also refer to guarantees voluntarily provided.

In fact, the historical arguments invoked by the Tax and Customs Authority corroborate this interpretation.

Indeed, the exemption in question has its evident origin in that provided for in no. 4 of article 94 of the TGIS approved by Decree no. 21916, of 28-11-1932, amended by Decree-Law 85/96, of 29 June, which has the following wording:

4 - Exempted from the tax are the guarantees inherent to forward operations carried out, recorded, settled or cleared through the stock exchange and which have as their object, directly or indirectly, securities, of a real or theoretical nature, rights equivalent to them, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies

As is explicitly stated in the preamble of this Decree-Law no. 85/96, the exemption was justified by the "entry into operation of the market for operations on futures and options, carried out on national stock exchanges intended for the conduct of forward operations".

This statute was approved by the Government based on the legislative authorization granted by article 30 of Law no. 10-B/96, of 23 March, which allowed the Government to "establish the tax regime applicable, in the relevant taxes, to new financial instruments, in particular futures and options, taking into account their specificities, the purpose of the operation, the diversity of market participants and the characteristics thereof, with a view to creating a tax framework suited to the needs of market development but preventive of fraud and tax evasion".

It is thus clear that, originally the exemption only covered "new financial instruments", which was not the case with bonds.

In fact, being this the meaning of the legislative authorization, it would be unconstitutional for Decree-Law no. 85/96 to the extent that it extended the exemption to hypothetical guarantees connected with the issuance of bonds, since, by virtue of the provision of article 115, no. 2, of the Constitution of the Portuguese Republic of 1992, then in effect, decree-laws published in the use of legislative authorization were subordinated to the corresponding laws.

The exemption was maintained in exactly the same terms in article 6, no. 1, paragraph d), of the Stamp Tax Code, approved by Law nº 150/99, of 11 September.

The amendments to the text made by Law no. 107-B/2003, of 31 December (which is currently in force), consisted in the suppression of the reference to forward operations and the replacement of the reference to the stock exchange, by the reference to all operations carried out through a regulated market management entity or through an entity indicated or authorized by such entity in the exercise of legal or regulatory power or else through an organized market management entity registered in the CMVM.

But, as to the types of operations whose inherent guarantees are covered by the exemption, there was no change in this new wording, continuing to say, as originally, that they are operations which "have as their object, directly or indirectly, securities, of a real or theoretical nature, rights equivalent to them, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies".

The textual maintenance by Law no. 107-B/2003 of that formula operations which "have as their object, directly or indirectly, securities, of a real or theoretical nature, rights equivalent to them, futures contracts, interest rates, currencies or indices on securities, interest rates or currencies", which surely did not cover the issuance of bonds, to reference the types of operations whose inherent guarantees are covered by the exemption, indicates a legislative intent to maintain its scope, as to the types of operations covered, and not to alter it.

On the other hand, the only change as to the types of operations whose inherent guarantees are covered by the exemption that is detected in the formula of Law no. 107-B/2003 consists in the extension of this to the guarantees inherent to operations of those types that are not forward operations.

But, this change has nothing to do with the issuance of bonds, so that the guarantees provided in connection with operations of this type, which were not included in the initial formula of the exemption, continue not to be covered by it. ( [3] )

Furthermore, the reference made in the preamble of Decree-Law no. 85/96 to the objective of implementation of the market for operations on futures and options reveals that forward operations were envisaged within the secondary market, which have as their object transactions of already created securities, and not primary market operations, in particular the creation and issuance of new securities. Besides, this is the interpretation that best aligns with the legislative formula used of "operations ... which have as their object ... securities".

It is concluded, therefore, that the Claimant is not entitled to the exemption it seeks, and therefore the request for arbitral pronouncement is inadmissible.

4. Compensatory Interest

Since the request for arbitral pronouncement is inadmissible as to the question of illegality of the levy, the request for compensatory interest, which presupposes the recognition of its illegality (article 43, no. 1, of the LGT), is inadmissible.

5. Decision

In these terms, this Arbitral Court agrees to:

a) Judge the request for arbitral pronouncement inadmissible;

b) Acquit the Tax and Customs Authority of the claims.

6. Value of the Proceedings

In accordance with the provisions of art. 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CCPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 4,059,390.00.

7. Costs

Pursuant to art. 22, no. 4, of the RJAT, the amount of costs is fixed at € 51,408.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant.

Lisbon, 19-09-2016

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Eduardo Paz Ferreira)

(A. Sérgio de Matos)

[1] Priberam and Porto Editora Dictionaries, available at http://www.infopedia.pt/dicionarios/lingua-portuguesa/inerente and http://www.priberam.pt/dlpo/inerente.

In the same sense, in the Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, "inherent" is defined as: "which is united, linked by nature to someone or something".

( [2] ) BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.

[3] The procedural situation in the present proceedings is different from that which was the subject of the arbitral award of 30-11-2014, handed down in proceedings no. 69/2014-T, since there there was consensus of the parties as to the classification in that rule of the guarantees intended to cover the liabilities of the issuer of a bond loan, the divergence being reduced to the question of whether Interbolsa was one of the entities referred to in paragraph d) of no. 1 of article 7 of the TGIS.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) due on guarantees provided in the context of bond issuances in Portugal?
Under Portuguese tax law, Stamp Tax (Imposto do Selo) is generally levied on guarantees of obligations under Item 10.3 of the General Stamp Tax Table (TGIS). However, guarantees provided in the context of bond issuances may qualify for exemptions under specific provisions applicable to securities market transactions. In Process 97/2016-T, the claimant challenged a €4,059,390 assessment on guarantees securing a €575 million bond emission, arguing that such guarantees should be exempt when related to bonds issued and registered in centralized securities systems managed by entities like Interbolsa (referenced as D... in the decision). The taxability depends on whether the transaction falls within exemptions for securities market operations or whether the general rule taxing all guarantees applies.
What exemption applies to Stamp Tax on guarantees related to bond emissions under Portuguese tax law?
Portuguese tax law provides exemptions from Stamp Tax for certain securities market transactions. Guarantees related to bond emissions may be exempt under provisions that protect securities market operations from transaction taxes that could hinder capital market activity. The specific exemption applicable to bond-related guarantees typically derives from legislation promoting securities markets and financial instruments traded in regulated systems. In this case, the bonds were issued by private placement to institutional investors, registered in the CVM (Securities Clearing Centre) managed by a centralized securities system, and assigned ISIN codes. Such characteristics may trigger exemptions designed to facilitate capital market financing. The legal basis would involve interpreting Stamp Tax exemption provisions in conjunction with securities market regulations.
How did the CAAD arbitral tribunal rule on the €4 million Stamp Tax assessment in process 97/2016-T?
While the complete decision is not fully detailed in the available excerpt, Process 97/2016-T involved a collective arbitral tribunal constituted under CAAD (Centro de Arbitragem Administrativa) on May 6, 2016. The tribunal comprised three arbitrators appointed by the Deontological Council. The claimant sought annulment of the €4,059,390 Stamp Tax assessment on guarantees (including mortgages) securing bond obligations. The Tax and Customs Authority defended inadmissibility of the arbitration request but did not submit administrative proceedings for review. The tribunal proceeded with written pleadings after dispensing with the oral hearing under Article 18 RJAT. The case examined whether Item 10.3 of the TGIS properly applied to guarantees in bond issuance contexts or whether securities market exemptions should prevail. The claimant also sought compensatory interest for the period the tax was improperly retained.
What is the legal procedure for challenging a Stamp Tax liquidation through tax arbitration (RJAT) in Portugal?
To challenge a Stamp Tax liquidation through tax arbitration in Portugal, taxpayers must follow the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The procedure involves: (1) filing a request for constitution of an arbitral court under Article 10(2) RJAT in conjunction with Article 102(1)(d) of the Tax Procedure Code (CPPT); (2) the request must be accepted by CAAD's President and notified to the Tax Authority; (3) the Deontological Council appoints arbitrators (typically three for a collective tribunal); (4) parties are notified and may refuse arbitrator appointments under Articles 6-7 of the Deontological Code; (5) the arbitral court is formally constituted; (6) the Tax Authority files a response; (7) proceedings continue through written pleadings or hearings as determined by the tribunal under Article 18 RJAT. In Process 97/2016-T, the arbitration request was filed on February 22, 2016, and the tribunal was constituted on May 6, 2016, demonstrating the relatively expedited timeline compared to traditional court proceedings.
Can a taxpayer claim compensatory interest (juros indemnizatórios) after an annulled Stamp Tax assessment?
Yes, under Portuguese tax law, taxpayers can claim compensatory interest (juros indemnizatórios) when a tax assessment is annulled and the tax was paid. Compensatory interest is regulated by Article 43 of the General Tax Law (LGT) and compensates taxpayers for the State's improper retention of amounts not legally due. In Process 97/2016-T, the claimant specifically requested that the Tax and Customs Authority be ordered to pay compensatory interest in addition to annulment of the €4,059,390 Stamp Tax assessment. This interest accrues from the date of payment (in this case, December 21, 2015, when the Notarial Office paid the levied amount) until reimbursement. The rate and calculation method are established by law. Compensatory interest serves as a fundamental taxpayer protection, ensuring the State bears the cost when it improperly collects taxes later determined to be unlawful, placing taxpayers in the economic position they would have occupied had the illegal taxation not occurred.