The Portuguese Banking Sector Surcharge (or “ASSB” – which translates literally as the Additional on the Banking Sector) regime was created in 2020, amid the Covid-19 crisis, included in the Law that approved the 2020 Supplementary Budget, whose aim was to respond to the pandemic crisis (Law n.o 27-A/2020, 24th July).
Firstly, there are already existed the Contribution on the Banking Sector (CSB), a special contribution directed to financial institutions that was created as a response to the 2008 financial crisis, and whose model exists in almost every European country. The ASSB, however, is strictly a Portuguese novelty, and its appearance was initially justified with the need to give a strong public response to the pandemic – this justification has since been somehow disproved.
Notwithstanding the apparent good intentions of the legislator, the truth is that the legal regime contained in Law n.o 27-A/2020 is utterly erratic and even arguably unconstitutional.
First of all, the nature of the ASSB is seemingly undetermined: it is presented as a surcharge of the preexisting CSB, and its basis is that of a typical contribution, but it lacks the “bilaterality” feature that stems from the Portuguese Constitution – contributions, as well as levies (in Portuguese “taxas”), must present a specific purpose related to their taxation basis, i. e., the relation with the taxpayer must be a bilateral one. The ASSB does not bear that feature – the revenues generated by the ASSB are consigned to the Social Security Financial Stability Fund (FEFSS), which eliminates any possible correlation between the incidence of the ASSB and its purpose.
Therefore, the ASSB must be deemed a tax per se, and recognizably the Portuguese Tax Administration (AT) has considered the ASSB to be a tax in recent litigations.
However, that gives rise to a whole lot of other legal issues, e.g. the Constitution demands taxes to abide by the ability-to-pay principle. Now, the ASSB’s tax basis are the banks’ liabilities, which means it does not tax income, consumption or property, which are the typical tax bases.
Most surprisingly, nevertheless, is the AT’s efforts, in recent litigations, to classify the ASSB as almost a VAT surcharge over the banking sector, to make up for the general VAT exemption the benefits financial operations. This is completely new, and relates even less to the ASSB’s legal regime: if it is an indirect tax, similar to the VAT, how can it tax liabilities?
The AT has even gone further and tried a legitimation of the ASSB by including it in the category of Financial Activities Tax (FAT) or Financial Transactions Tax (FTT), that have recently been in discussion in Europe.
This matter calls for an extensive analysis, but one conclusion must be struck: the configuration of the ASSB is all wrong. The model is not compatible with anything the Portuguese tax system, or even European ones, have ever seen.
For example, and citing the Portuguese author Vasconcelos Fernandes[1], the UK employed a similar solution, but with a proper legal regime: the Bank Corporation Tax Surcharge, which is a true surcharge to the UK’s Corporate Tax Income. Notably, the British legislator thought of a solution that probably did not occur to the Portuguese legislator: to tax income.
The Bank Corporation Tax Surcharge is a typical FAT: it increasingly taxes the banks’ profits, in a way that demands banks to pay more tax than most corporations, thus satisfying the public aims of overcharging the banking sector (which I do not necessarily condone).
FATs tax financial activities, which means they should be directed to the financial corporations’ profits, unlike what the ASSB does. FTTs tax financial transaction, being much closer to the VAT or other consumption taxes – the ASSB certainly does not fit in this category either.
Thus, the Portuguese legislator created a set of never-ending crossroads: the ASSB is presented as a surcharge to the preexisting CSB (having even replicated its tax basis formula), but the whole regime makes it a tax per se, not a contribution. Being a tax, it arguably does not abide by the ability-to-pay constitutional principle and is even contrary to the prohibition of retroactivity of tax laws. The AT tried then to squeeze it in the category of indirect taxes (e.g. VAT), but the ASSB taxes liabilities, and completely ignores the typical tax bases: income, consumption or property.
The final attempt to classify them as an FAT or FTT, considering the configurations that have been given to these taxes in European countries, is evermore inadequate: the ASSB does not tax financial activities, for it does not care about profits, let alone the financial transactions themselves.
The question I should pose is: why did this happen? With several successful (or at least coherent) models of financial and bank surcharges across Europe, such as the UK Bank Surcharge, why did the Portuguese legislator choose this intricate, nonsense path of such an incoherent legal regime?
My expectation is that the litigation over the ASSB begins to be decided in courts against the Tax Administration, on the basis of the illegal, or even unconstitutional, character of this tax.
José Saraiva
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[1] Filipe de Vasconcelos Fernandes, O (Imposto) Adicional de Solidariedade sobre o Setor Bancário – regime financeiro, fiscal & constitucional, 2020, AAFDL editora, p. 128