CJEU rules Portuguese stamp tax on market placement fees contradicts directive
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CJEU rules Portuguese stamp tax on market placement fees contradicts directive

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Recent decisions on market placement fees for investment fund units and debentures open the door for taxpayers to seek the recovery of stamp tax, say Susana Estêvão Gonçalves and Nicolle Barbetti of Cuatrecasas

In a decision dated July 19 2023, within the scope of Case C-335/22, the Court of Justice of the European Union (CJEU) ruled that the Portuguese stamp tax on fees for placing debt securities (such as bonds and commercial paper) on the market is contrary to Council Directive 2008/7/EC of February 12 2008, concerning indirect taxes levied on the raising of capital (the Capital Raising Directive).

The Capital Raising Directive is based on the premise that indirect taxes on the raising of capital, such as stamp taxes, “give rise to discrimination, double taxation and disparities which interfere with the free movement of capital”. Therefore, the directive aims to harmonise the legislation of the EU member states to prevent, as far as possible, indirect taxation on the raising of capital. In this regard, the preamble of the directive clearly states that “no stamp duty should be levied on securities, regardless of the origin of such securities, and regardless of whether they represent a company’s own capital or its loan capital”.

Article 5, No. 2, paragraph (b) of the Capital Raising Directive specifically establishes that EU member states shall not apply any form of indirect tax (namely, stamp taxes), inter alia, to the creation, issuance, admission to quotation on a stock exchange, making available/placement on the market, or dealing of debentures (for example, bonds or commercial paper) or other negotiable securities.

However, under Portuguese law (paragraph 17.3.4 of the General Stamp Tax Table), stamp tax is imposed on any “fees and payments for financial services, including amounts relating to card-based payment transactions” carried out by, or through, the intermediation of credit institutions, financial companies, or other legally equivalent entities, as well as any other financial institutions. Any fees charged by financial entities for the placement of securities (including debentures) in Portugal are covered by this stamp tax rule.

CJEU assesses compatibility with the Capital Raising Directive

In the case at hand, a Portuguese credit institution that was acting as a financial intermediary – providing placement services under several bonds and commercial paper issuance operations for multiple issuers – challenged the aforementioned provision of the General Stamp Tax Table (under which it was required to assess stamp tax on the fees charged for its services) by submitting a request for an arbitral decision of the Administrative Arbitration Centre (CAAD) on the ground of its incompatibility with the Capital Raising Directive.

In turn, the CAAD requested a preliminary ruling from the CJEU regarding the compatibility issues raised, seeking to ascertain:

  • Whether Article 5, No. 2, paragraph (b) of the Capital Raising Directive prevents the imposition of stamp tax on commissions for financial intermediary services provided by a bank concerning the placement in the market of negotiable securities, such as bonds and commercial paper; and

  • Whether the outcome differs depending on whether the provision of financial services is legally required or merely optional.

This preliminary ruling request gave rise to Case C-335/22, in which the CJEU:

  • Underlined the need for a broad interpretation of the prohibition of indirect taxes on the raising of capital (other than capital contributions) established in the Capital Raising Directive, to ensure its effective application;

  • Stated that the market placement – intended to inform the public about negotiable securities offers and promote their subscription and acquisition – is so closely linked to the issuance and placement of securities in circulation, within the meaning of the Capital Raising Directive, that it must be considered an integral part of an overall transaction from a raising-of-capital perspective; and

  • Affirmed that this link is in no way contingent on the existence of a legal requirement for this service to be provided by third parties.

Accordingly, the CJEU concluded that a piece of domestic legislation that sets forth the imposition of stamp tax on fees for the placement of securities, such as bonds and commercial paper, on the market (regardless of whether it is legally mandatory to use the services of a third party) is incompatible with the Capital Raising Directive.

The CJEU had already followed this line of reasoning in IM Gestão de Ativos (Case C-656/21), from December 22 2022, concerning the incompatibility of the stamp tax on fees for marketing services connected to new capital contributions aimed at subscribing newly issued fund units (imposed by the same paragraph, 17.3.4, of the General Stamp Tax Table) with Article 5, No. 2, paragraph (a) of the Capital Raising Directive.

Key takeaway regarding stamp tax on market placement fees

These recent decisions on market placement fees for investment fund units and debentures – specifically, bonds and commercial paper – pave the way for taxpayers to seek the recovery of stamp tax paid on these fees, using the administrative and judicial procedures available and within the applicable time limits, on the ground of the incompatibility of such stamp tax with the Capital Raising Directive.

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