A AA A CUATRECASAS TAX Newsletter 3rd Quarter 2018 Contents Editorial I. Interest payment due to the taxpayer: the error (un)attributable to the services II. Stamp duty on financial services: Saving the past Ill. Legislation A AA CUATRECASAS A EDITORIAL prices for the middle class. Nevertheless, as announced, it will not be a measure exclusively targeted at the residential market, as it is intended for the commercial rental market also to be covered. The third quarter of the year, summertime in Portugal, is invariably characterized by scarce domestic news and, internationally, by the well known Annual Congress of the International Fiscal Association ("IFA"). In the international setting, one must point out the 72"a Annual \FA Congress, which took place this year in Seoul. The two major issues under discussion could not be timelier: the quest for general anti abuse rules and the impact of traditional withholding tax in the BEPS (Base Erosion and Profit Shifting) era, collective investment vehicles and digital economy. From a domestic perspective, and although there is not much to highlight, there are two aspects to point-out: on the one hand, the long-awaited publication of the decree which extended the validity of some tax benefits, on the other hand the already announced creation of REIT (Real Estate Investment Trust). The widespread use - and undeniably necessary - of general anti-abuse rules compels us to reflect about the - also unequivocally necessary - balance between taxpayers' rights and the taxation rights of the States which use this type of rules. The search for such balance was precisely one of the main subject matters chosen for the 72"a Annual Congress of the IFA. As far as tax benefits are concerned, the validity of certain tax benefits, which may be deemed as structural to the Portuguese tax system, was secured, with little or no change. This was the case of benefits related to long-term savings, foreign loans and rents of imported equipment, financial services of public entities, swaps and loans from non resident financial institutions and deposits from non-resident credit institutions. The extension of their validity will allow, among other things, to avoid the increase of costs that would certainly derive from gross-up clauses, which typically protect non resident credit institutions from any increase of taxation at source. Nonetheless, we regret the repeal of tax benefits regarding net job creation and share savings plans, which were, at different levels, also relevant within the Portuguese tax system. Anyway, at least for the time being and until the end of 2019, we are likely to have some stability and certainty as far as tax benefits are concerned. The subject matter regarding the withholding mechanism as a safeguard of taxation powers raises equally important issues: in a growing economy, with the dematerialization of means and digitization of its supports, withholding mechanisms may be the only way to ensure effective taxation. If, in addition to the problems historically associated to the withholding tax mechanism, we consider that the BEPS plan does not address them (at least not directly), it is easy to conclude that such will be a prominent topic of debate in the near future. It will beyond any doubt require special attention by those who, in the role of legislator, administration or taxpayer, form part of the world of taxation. In terms of announcements, it is also worth mentioning the draft-law proposed by the Government foreseeing the creation of the so-called REIT, a special type of real estate investment company eagerly awaited by the Portuguese market and which will surely allow Portugal to climb a few points in the international real estate investment competitiveness rankings. It is expected that the establishment of real estate investment companies with a favorable tax regime, increasing investor return, will also enable a significant increase of the available offer in the long-term rental market (still largely untapped), desirably with more affordable A final note to the European Commission's press release concerning the investigation carried-out in Luxembourg and the possible allocation of unlawful State aid to McDonald's Europe Franchising. Contrary to previous decisions (for example regarding Apple), the European Commission believes that the European State aid rules were not breached by the Luxembourg authorities upon their issuance of tax rulings confirming the tax exemption for royalties paid to a company branch in the United States of America. According to the European Commission, such an exemption did not result from T ax Ncwslcucr 2 CUATRECASAS A AA A the granting of a special advantage to McDonald's Europe Franchising, but simply from existing disparities between tax legislations of different States. It is good to see common sense prevailing. Finally, we can only wish an excellent rentree, hoping that this last quarter of 2018 will be rich in fiscal matters, which we will surely have the opportunity to analyze in our next edition. Diogo Ortigiio Ramos I. INTEREST PAYMENT DUE TO THE TAXPAYER: THE ERROR (UN)ATTRIBUTABLE TO THE SERVICES consider that the breach of the procedural rights of the citizens (such as the lack of express legal grounds for the decision) is not an «error attributable to the services», given that such unlawfulness merely corresponds to the non-compliance with procedural legal requirements. In other words, since it does not entail any misconception of the facts or the applicable rules - and, therefore, does not involve any judgement on whether the assessed amount is in fact due - the referred courts consider these cases to be outside the scope of the concept under analysis. Even though there are reasonable arguments to purport such line of reasoning, it is hardly understandable by or explicable to the common taxpayer: how is the taxpayer unentitled to compensation for the amount unlawfully paid when the PTA have not even met the procedural requirements to issue the tax assessment? In such cases, it is even clearer that one cannot deny the right to indemnity interest. Moreover, the lack of coherence of the regime under analysis is even more obvious when the excess tax derives from the application of a rule that comes to be declared as unconstitutional. According to the Portuguese legal system, taxpayers are entitled to indemnity interest when, due to an error attributable to the Portuguese Tax Authorities' ("PTA") services, excess tax is paid. The right to a compensation for the unavailability period of the underlying capital therefore depends on the interpretation of the concept of «error attributable to the services». On the one hand, it is nowadays absolutely unanimous that such concept encompasses situations in which the PTA misapply substantive tax legislation, leading to overtaxation. According to recent rulings issued by the Supreme Administrative Court, considering that the scope of functions attributed to the PTA do not include the analysis as to the compliance of ordinary rules with the Constitution, its services cannot refuse to apply a rule on the grounds of its unconstitutionality. In fact, services would only be entitled to refuse the application for such a reason based on a previous binding declaration of unconstitutionality of the rule at stake, issued by the Constitutional Court. There are, however, cases in which the taxpayers' right to perceive indemnity interest is much more uncertain in light of the existing jurisprudence. Such cases recommend a more detailed analysis. It is quite surprising to realise that, according to recent rulings issued by the Portuguese higher courts, even if a tax assessment is deemed as illegal due to the breach of procedural rules, such a fault is not considered as being an «error attributable to the services». In a nutshell, the Portuguese higher courts In other words, according to this interpretation, the application of an unconstitutional rule does not generally correspond to a situation of «error attributable to the services», which means that taxpayers will not be entitled to indemnity interest on the amount (unduly) collected. In such cases, the only way to seek compensation is to rely on the general regime of civil liability and take legal action against the Portuguese State, claiming for an indemnity aimed at repairing the losses incurred. TaxNewslelter 3 CUATRECASAS A AA A We are. therefore. facing a real paradox: the taxpayers' protection is less effective when the PTA fail to comply with the rules laid down on the Constitution - the basis and foundation of all the Portuguese legal system - than when the PT A fail to comply with the ordinary law, by law and nature subordinated to the Constitution. «error attributable to the services». in order to specifically encompass the violation of formal rules by the PT A. The regime should impose a case-by case analysis, ruling out the right to indemnity interest only in the cases where the non-compliance with the Constitution is particularly questionable - case in which the censorship associated to the application of such rule is mitigated or reduced. The referred paradox is even bigger if one considers that, (also according to) recent decisions issued by the Portuguese higher courts. the application by the PTA of ordinary law not compliant with European Law consists of an «error attributable to the services» and therefore entitles the taxpayer to indemnity interest. Iara Marques Freitas Mariana Mendonra Saraiva II. STAMP DUTY ON FINANCIAL SERVICES: SAVING THE PAST It is clear that, considering the effectiveness and equivalence principles, any other solution would be unacceptable by the Court of Justice of the European Union, as it would correspond to a less effective protection of European rights when compared to rights (solely) derived from domestic rules. On July 26, 2018, the Administrative Arbitration Center ("CAAD") published its most recent decision regarding Stamp Duty on default interest regarding housing purchase loans. Merchant Service Charge ("MSC), interchange fees, as well as fees regarding card payment based operations. However. the mix of all the above is inevitably surprising: the PTA must uphold the proper application of European law - refusing the application of domestic rules that fail to comply with such law, even when the non-compliance has not yet been declared by any Court - but not of the Constitution, refusing the application of unconstitutional internal rules. The background underlying the decision at stake relates to the legality of the additional assessment issued by the Portuguese Tax Authorities ("PTA"), being possible to distinguish two main sets of questions: the first one regarding the Stamp Duty on default interest on housing purchase loans and on the MSC. and a second one regarding Stamp Duty on the interchange fees and fees regarding card payment based operations. Understandable as it may be that the analysis of compliance of ordinary law with the Constitution cannot be made by the PTA, the denial of indemnity interest for the damages incurred by each taxpayer as a result of the application of unconstitutional rules is completely unacceptable. In fact, in such cases the right to a compensation for the damages resulting from the application of unconstitutional rules can only be enacted by the taxpayer through a specific legal action that - considering the costs involved - is hardly ever submitted. Keeping in line with previous decisions - and their underlying reasoning - as set out in cases no. 292/2016-T, of November 3, and no. 756/2016-T, of December 7, the CAAD confirmed no Stamp Duty applies over default interest on housing purchase loans. The CAAD supported its decision on the grounds that interest regarding loans for acquisition, construction, reconstruction or improvement of housing are exempted from Stamp Duty, and, In light of the above, it is highly desirable to revisit the existing legal regime, namely the concept of TaxNewslelter 4 CUATRECASAS A AA A therefore, interest for late payment should also benefit from said exemption. the process underlying the current wording of the exemption foreseen in article 7 (1) (e) of the Stamp Duty Code, considering that the subject matter «can be seen as matter of Law application in time or succession of Laws in time». Also in line with previous rulings on Stamp Duty regarding the MSC, the CAAD restated the conclusions reached - and respective reasoning - under case no. 756/2016-T, of December 7, ruling in identical terms: Stamp Duty does apply on the MSC. In this sense, upon a brief analysis, the CAAD concluded that the new wording of paragraph 17.3.4 of the Stamp Duty General Chart, which clarified that fees for financial services also include fees for card payment based operations, did not broaden the scope of application of the said rule, as even in the absence of such clarification, the interchange fees and the fees regarding payment based operations would per se qualify as fees for financial services. In broad terms, the CAAD concluded that the MSC should be viewed as a fee derived from the rendering of a financial service (i.e. payment services). As such, due to the absence of an applicable exemption to these cases, such fee shall be subject to Stamp Duty. Once more the CAAD did not take the view that said fee should be construed as a mere difference in value resulting from a traditional assignment of credit, nor did it take into consideration the possibility of said taxation having a retroactive nature, denying the innovative nature on this regard of Regulation (EU) 2015/751 of the Parliament and the Council, 29 April 2015, on interchange fees applicable to card payments based operations. The CAAD was then tasked with determining whether the amendment introduced with the BL16, which added paragraph 7 to article 7 of the Stamp Duty Code, conferring to the said provision an interpretative nature, by restricting the scope of the exemption foreseen in article 7 (1) (e) of the Stamp Duty Code was to be deemed illegal for resulting in a retroactive application of the law. While within the first set of issues the CAAD decisions do not innovate, regarding the second set of questions one should further elaborate. In fact, for the first time, a decision on the application of Stamp Duty on interchange fees and fees regarding card payment based operations was issued by a national court. According to article 7 (1) (e) of the Stamp Duty Code an exemption applies to "interests and commissions charged, guarantees rendered, as well to credit granted by credit institutions, financial companies and financial entities to venture capital companies, as well as to companies or entities whose legal form and corporate purpose meet the type of credit institutions, financial companies and financial entities as foreseen in EU's legislation, established within an EU-Member state, or in any other State provided that not domiciled in a blacklisted jurisdiction". As it stands nowadays, Portuguese Stamp Duty Jaw does not raise any doubt as to the subject to tax status of said fees: they are specifically foreseen in paragraph 17.3.4 of the Stamp Duty General Chart, there being no doubt that the exemption established by article 7 (1) (e) of the Stamp Duty Code is not applicable in such operations. BL16 introduced to article 7 of the Stamp Duty Code its current paragraph 7, under which the mentioned exemption shall only be applicable to guarantees and financial operations directly linked with the granting of credit. This new paragraph was deemed to have an interpretative nature. Notwithstanding, the process of reaching the current wording of the provisions at stake was not straightforward, reason why the CAAD was faced with the task to analyze in depth the nature of the amendments established by the Budget Law for 2016 (Law no. 7-A/2016, 30 March) ("BL16"). In particular, CAAD undertook a detailed analysis on As such, the CAAD had to analyze the nature of the aforementioned amendment and the extension of its effects: should it be deemed as an authentic TaxNewslelter 5 CUATRECASAS A AA A interpretative provision, which merely clarified and settled one of several possible interpretations, not affecting its application to past taxable events? Or should it such interpretative nature be denied, as the new provision was in fact restricting the scope of application of the exemption and, as such, would be unable to affect past taxable events? Ministry of Finance Ordinance No. 195/2018, of July 5 > Defines the concept of technological sector for the purposes of article 43-C of the Tax Benefits Law Ministry of Finance Ordinance No. 213/2018, of July 18 > Approves the terms, formats and procedures applicable to the Municipalities for the purposes of reporting the elements set forth in article 128 (1) of the Property Tax (IMI) Code to the Tax Authorities Upon an exhaustive analysis, the CAAD concluded that in fact the amendment in question, by restricting the application of the exemption in situations linked with the granting of credit, was impacting on the scope of application of the exemption, by effectively restricting the situations to which it used to apply. As result, said new provision could not affect fees charged before the amendment introduced by the BL16 came into force, on the grounds the tax Laws cannot be retroactive. Ministry of Finance Ordinance No. 226/2018,of August 7 > Defines, by reference to the first part of the 2019, the color and price of the special stamp applicable to tobacco products whose production and import into the national territory, as well as their entry into national territory when coming from another Member State, occurs until May 20, 2019 All considered, one can note that the decision under analysis contains two main strands: it stabilized and consolidated the Stamp Duty treatment on default interests on housing loans and on the MSC, while at the same time it sets clear boundaries on the application of provisions having a retroactive nature, with a reasoning that may be used in similar cases, in which the legislator might be tempted, by resorting to interpretative provisions, to affect past and consolidated taxable events. Parliament Law No. 37 /2018, of August 7 > Amends Law No.151/2015, of September 11, on the Budgetary Framework Law, rescheduling its effects Parliament Law No. 39/2018, of August 8 T iinia de Almeida Ferreira Joiio Garrinhas > Establishes a minimum term of 120 days in advance for the availability of the digital forms under the responsibility of the Tax Authorities, amending the General Tax Law Ill. LEGISLATION Parliament Law No. 43/2018,of August 9 > Extends the applicability of certain tax benefits, amending the Tax Benefits Law Autonomous Region of Madeira - Government Presidency Regional Decree No. 9/2018/M, of July 2 Parliament Law No. 42/2018, of August 9 > Approves the execution of the Budget of the Autonomous Region of Madeira for the year 2018 > Authorizes the Government to approve a special tax regime for maritime transport activity and tax benefits applicable to crew members TaxNewslelter 6 CUATRECASAS A AA A Parliament Law No. 51/2018, of August 16 Contact > Amends the Local Finance Law and the IMI Code
Cuatrecasas, Goncalves Pereira & Associados, Ministry of Finance Ordinance No. 233/2018, of August 21 Sociedade de Advogados, SP, RL Sociedade profissional de responsabilidade limitada > Regulates the Legal Framework of the Central Registry of the Beneficial Owner Ministry of Foreign Affairs Notice No. 107 /2018, of August 24 Lisbon Praca Marques de Pombal. 2 (e 1-8°) 1250-160 Lisboa I Portugal Tel. (351) 21355 3800 I Fax (351) 21353 2362 email@example.com www.cuatrecasas.com > Announces that the internal constitutional requirements for the approval of the Convention between the Portuguese Republic and Barbados to avoid Double Taxation and Prevent Tax Evasion with respect to Income Taxes, signed in London, on October 22, 2010, have been complied Ministry of Justice Ordinance No. 259/2018, of September 13 Porto Avenida da Boavista. 3265 - 5.1 4100-137 Porto I Portugal Tel. (351) 22 616 6920 I Fax (351) 22 616 6949 c uat recasas po rto@c u at recasa s. com www.cuatrecasas.com > Provides access to the information, in electronic support, for the identification of the entities of Article 4 (1) (a). (b) and (e) of the Framework of the National Registry of Companies - Companies Registration Online Certificate For additional information on the contents of this document, please contact Cuatrecasas. Presidency of the Council of Ministers Ordinance No. 269/2018, of September 26 > Amends Ordinance No. 246-A/2016, of September 8, that establishes the conditions and procedures for the partial reimbursement regime of fuel taxes for freight transport companies, provided in Article 93-A of the Excise Tax Code Ministry of Finance Ordinance No. 490/2018, of September 28 > Establishes the rules for the application of the incentive regime for cinematographic and audiovisual production under the Tourism and Cinema Support Fund, created by Decree-Law No. 45/2018, of June 19, and approves the Regulation of the Incentive for © Cuatrecasas, Gonçalves Pereira & Associados, Sociedade de Advogados, SP, RL 2018. The total or partial reproduction is forbidden. All rights reserved. This communication is a selection of the news and legislation considered to be relevant on reference topics and it is not intended to be an exhaustive compilation of all the news of the reporting period. The information contained on this page does not constitute legal advice in any field of our professional activity.
Information about the processing of your personal data
Data Controller: Cuatrecasas, Gonçalves Pereira & Associados, Sociedade de Advogados, SP, RL (“Cuatrecasas Portugal”). Purposes: management of the use of the website, of the applications and/or of your relationship with Cuatrecasas Portugal, including the sending of information on legislative news and events promoted by Cuatrecasas Portugal. Legitimacy: the legitimate interest of Cuatrecasas Portugal and/or, where applicable, the consent of the data subject. Cinematographic and Audiovisual Production TaxNewslelter 7 CUATRECASAS A AA A Recipients: third parties to whom Cuatrecasas Portugal is contractually or legally obliged to communicate data, as well as to companies in its group. Rights: access, rectify, erase, oppose, request the portability of your data and/or limit its processing, as described in the additional information. For more detailed information on how we treat your data, please go to our data protection policy.
If you have any questions about how we treat your data, or if you do not wish to continue to receive communications from Cuatrecasas Portugal, we kindly ask you to inform us by sending a message to the following email address firstname.lastname@example.org.
T ax Newsleuer 8