ECJ rules against Portuguese Stamp Tax

Filipe Romão, António Castro Caldas.

2007 Tax Analysts, n.º 3

The European Court of Justice on June 21 issued its judgment in Optimus-Telecomunicações SA v. Fazenda Pública (C-366/05), holding that a Portuguese rule that establishes that stamp tax is due on capital increases paid in cash is contrary to Directive 69/335/EEC, as amended by Directive 85/303/ EEC, concerning indirect taxes on the raising of capital. (For the judgment, see Doc 2007-15071 or 2007 WTD 122-14.)

The ruling is based on article 7 (1) of the directive, which establishes that EU member states must exempt from capital duty (in Portugal, the stamp tax) all transactions that were exempted or taxed at a rate of 0.50 percent or less as of July 1, 1984.

Portugal’s rules establishing that stamp tax will be levied on the capital increases of commercial companies were set forth in Decree-Law 322-B/2001 of December 14, 2001. According to that law, tax should be levied at a rate of 0.4 percent on the actual value of assets of any kind transferred as a result of the capital increase.

Paradoxically, the rules set forth in that law were enacted as a consequence of several previous ECJ rulings (including C-206/99 (SONAE-Tecnologia de Informação), C-56/98 (Modelo SGPS), and C-19/99 (Modelo Continente SGPS)), which held that article 10(c) of the aforementioned directive prohibited charges levied in Portugal for registering capital transactions and for notaries’ fees levied on the drawing up of public deeds recording capital transactions.

However, as of July 1, 1984, capital increases paid in cash were exempt from the stamp tax. The exemption did not apply to capital increases paid in kind or to the initial incorporation of a capital company.

Therefore, under article 7 (1) of the directive (as amended by Directive 85/303/EEC), the ECJ held that the rules enacted by Decree-Law 322-B/2001 that allowed for the levying of stamp tax on capital increases paid in cash were contrary to the directive.

And although the ECJ judgment does not expressly address them, the same conclusion should be applicable to the rules concerning the conversion into a capital company of an entity that is not a capital company, and to the transfer of capital companies from other countries to Portugal, because as of July 1, 1984, those events were not subject to stamp tax. As a result, Portuguese tax authorities should no longer apply those provisions of Portuguese law.

However, because capital increases paid in kind and initial incorporations of companies were not exempt in 1984, they may still be taxed.

As a consequence of the ECJ’s judgment, Portugal should refund any stamp tax that may have been improperly levied in this regard (and not only to the companies that raised the issue in the Portuguese courts initially, and before the ECJ).

Therefore, companies that were charged stamp tax on capital increases paid in cash (as well as in conversions or redomiciliations) may apply for a refund, provided the assessments were made in the past four years

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