The discussion on the definition of financial institution for Stamp Duty purposes has been long and nuanced, from the taxation of Venture Capital Companies to Pension Funds.
The issue has mostly regarded the application of Article 7(1)(e) of the Stamp Duty Code, which provides for an exemption in respect of loans granted by banks to entities whose form and object are fall under the types of credit institutions, financial companies and financial institutions provided for in European legislation.
For years the taxpayers and Tax Authorities have argued over what is to fit in the definition of financial institution for this purpose.
In the case of Holding Companies, the issue is exacerbated by the complex interpretation of the General Regime for Credit Institutions and Financial Companies, approved in 1992, and long overdue for a reform.
In 2020, two contradicting arbitral decisions were published just a few days apart, (i) Decision no. 911/2019-T, published October 28th 2020, and (ii) Decision no 856/2019-T, published November 2nd 2020, both regarding the exact same subject – the qualification of a Holding Company as a financial institution.
The first Decision argued that, for the purposes of applying the exemption provided for in Article 7(1)(e) of the Stamp Duty Code, Holding Companies should be regarded as financial institutions.
Following this interpretation, the interest and commissions fees charged, guarantees given and the use of credit granted by credit institutions, financial companies and financial institutions to Holding Companies may benefit from exemption from Stamp Duty.
The Arbitral Court bases its decision on the application of European law, namely Article 3(1)(22) of Directive 2013/36/EU of the European Parliament and of the Council, of 26 June 2013, and Article 4(26) of Regulation EU no 575/2013 of the European Parliament and of the Council of 26 June 2013, which would suffice for the purposes of applying the exemption.
Thus, it would, in the Court’s understanding, be irrelevant that the national legislation[1], when transposing that Directive, limited the same definition, as regards Holding Companies, to those that are subject to the supervision of the Bank of Portugal.
However, the second Decision, Decision no 856/2019-T, took the opposite direction, by considering that Holding Companies should not be considered “financial institutions” for the purposes of the exemption since, under the General Regime of Credit Institutions and Financial Companies, only Holding Companies subject to supervision by the Bank of Portugal should fall within this definition.
Recently, the Supreme Administrative Court was asked to rule on this (evident) contradiction of decisions in Case no. 0118/20.3BALSB. The Court considered that the solution to the dispute inherently involves the interpretation of provisions of European Union law, being the Court of Justice of the EU the competent entity to clarify the interpretation of the concept of financial institution.
In the mentioned Case no. 0118/20.3BALSB, the Supreme Administrative Court seems to tend towards the position that considers Holding Companies as financial institutions for Stamp Duty purposes.
However, we are now left to await the CJUE’s ruling on this matter.
On a final note, the Bank of Portugal has been pushing for the approval of the Banking Activity Code, which was set to replace the General Framework for Credit Institutions and Financial Companies, systematizing and updating its rules in the light of the needs of the current banking system. This project was under public consultation until January 2021, but there is no timetable, at this stage, for its approval.
Maria Lima Ferreira
Gómez-Acebo & Pombo
April 2022
[1] I.e. Article 2-A(z)(i) of the General Framework for Credit Institutions and Financial Companies.