New stamp duty exemption foreseen in regard to cash pooling in Portugal
As the final version of the State Budget Law for 2020 has finally been approved, Diogo Ortigão Ramos and João Pedro Russo of Cuatrecasas explain the changes made to stamp duty on the taxation cash pooling mechanisms.
Recently approved, the Portuguese State Budget Law for 2020 (the State Budget) introduced some changes to the stamp duty (SD) code. It foresees, among other minor amendments and clarifications, for a new exemption specifically applicable to cash pooling arrangements (i.e., arrangements in which two or more companies comprising a group, the participants, agree on the centralisation of their treasury management functions with a third party, usually a bank, which will be in charge of balancing the accounts of each entity in the cash pool).
Indeed, the State Budget introduces a new exemption applicable to any loans with a maturity period of up to one year and granted within a cash pooling arrangement, provided that, among the participants, there is a dominant or group relationship, defined by the SD Code as a relationship in place between (i) a parent company and the subsidiaries in which the former entity owns, directly or indirectly, a minimum shareholding percentage of at least 75% of share capital and 50% voting rights, and (ii) the same subsidiaries themselves.
By introducing this new exemption with respect to cash pooling arrangements, the lawmaker seems to have struck a compromising balance between the need to ensure taxable income at the level of SD and the need to not fiscally burden Portuguese companies’ treasury functions.
Pursuant to these changes, cash pooling arrangements deserve a fresh new look by corporate groups seeking for a tax efficient solution addressing their treasury needs, overcoming the uncertainty that still exists around the Portuguese tax authorities’ conservative approach to the tax treatment applicable to the provision of short-term loans. In a nutshell, this new exemption should be seen as good news to all stakeholders, as it will allow for greater levels of security in intra-group financing arrangements. Cash-pooling arrangements should increasingly become the preferred way to manage the treasury needs of corporate groups.
Therefore, it is of the utmost importance to make sure that such arrangements are properly drafted and implemented, and that they are coherently aligned and compliant with the group’s transfer pricing policies.
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