Financing of Portuguese holding companies and stamp tax: finally, case-law standardisation

Should a holding company be qualified as a ‘financial institution’ under EU law, to be able to benefit from a stamp tax exemption? Although the question is simple, the answer is less so. After several contradictory decisions by the Portuguese arbitral tax courts, the issue has now been definitively settled by the Supreme Administrative Court.

The Portuguese Stamp Tax Code provides for an exemption on credit granted by banks or financial entities in favour of entities that qualify as credit institutions, financial companies, and financial institutions under EU law (Directive 2013/36/EU and Regulation (EU) No. 575/2013, both of the European Parliament and of the Council of June 26 2013).

Several Portuguese ‘pure’ holding companies, qualified as sociedade gestora de participações sociais (SGPS), claimed eligibility for this exemption, arguing that they should be qualified as a financial entity, eliciting several contradictory decisions issued by Portuguese arbitral courts.

Some arbitral decisions concluded that SGPS qualify as financial entities (even if they do not hold shares in credit institutions or financial companies) and may benefit from the stamp tax exemption, allowing them to recover the tax amounts paid when obtaining bank credit. However, there were also arbitral decisions that concluded that SGPS that do not hold shares in financial companies do not qualify as financial institutions and, therefore, cannot benefit from the stamp tax exemption.

Given that under the Portuguese – very unique – tax arbitration courts regime the decision is not subject to an ordinary appeal, and given that the question raised concerns the interpretation of EU law, the first arbitral courts that were called to decide this matter should have applied Article 267 of the Treaty on the Functioning of the European Union and requested the European Court of Justice (ECJ) for a ruling, thus avoiding the contradictions and ensuing misinterpretation of EU law.

Fortunately, a 2019 amendment to the tax arbitration courts regime created the possibility to appeal to the Supreme Administrative Court on the ground of a conflict between two arbitral decisions (appeal for a case-law standardisation). Under one such appeal (case No. 0118/20.3BALSB of January 24 2024), the Supreme Administrative Court took the sensible decision – along with two arbitral courts – to apply the preliminary ruling mechanism and requested the ECJ to rule on the following: "Does a holding company domiciled in Portugal, regulated by the provisions of Decree-Law 495/88 of 30 December, whose sole purpose is to manage shareholdings in other companies that do not belong to the insurance sector, fall under the concept of financial institution referred to in Article 3(1)(22) of Directive 2013/36/EU and Article 4(1)(26) of EU Regulation No 575/2013?"

In the view of the ECJ, inter alia, an undertaking whose principal activity is not linked to the financial sector – to the extent that it does not carry out, directly or through holdings, one or more activities referred to in Annex I to Directive 2013/36 – cannot be regarded as being a financial institution within the meaning of Directive 2013/36 and of Regulation No. 575/2013.

Consequently, the ECJ stated: “The answer to the questions referred is that point 22 of Article 3(1) of Directive 2013/36 and point 26 of Article 4(1) of Regulation No 575/2013 must be interpreted as meaning that an undertaking, the activity of which is to acquire holdings in companies which do not carry out activities in the financial sector, is not included within the concept of ‘financial institution’ within the meaning of that directive and of that regulation.”

After such conclusion, the Supreme Administrative Court has issued a standardising court ruling, following very closely the ECJ’s position and bringing to an end the conflicting views taken by the arbitral courts.

Based on the above, the Portuguese court ruled that, due to the lack of financial institution status, SGPS cannot benefit from the Portuguese stamp tax exemption when obtaining credit from banks.

From the authors’ perspective, the qualification of SGPS as financial institutions was clearly grounded on an incorrect interpretation of EU law, as was highlighted by the ECJ. This controversy should not have arisen, as the first arbitral courts should have referred the cases to the ECJ before deciding.

Although the stamp tax exemption is not applicable in this case, a de iure condendo approach recommends the expansion of existing exemptions regarding credit operations, in the name of the competitiveness of the domestic financial market and the conditions of the Portuguese companies when accessing credit, as stamp tax increases the already high economic burden that entities based in Portugal face in obtaining financing.

It should be noted that, unlike the Portuguese framework, the stamp tax on credit granted by banks and financial entities is not provided for in several other EU member states, and it is becoming increasingly difficult to understand why the Portuguese tax system maintains its oldest and most ill-suited form of taxation, dated from 1660, on such operations.