Stamp duty on cash-pooling agreements

Abreu Advogados’s Tax Law team provided legal advice to the Portuguese company of the Faurécia group, one of the largest suppliers of automotive components in the world, in a dispute between the Portuguese car seat manufacturer and the Portuguese Tax Authorities regarding the (non-) liability for Stamp Duty on the company’s financial flows in the context of the Group’s Cash-Pooling agreement, which ended with a truly historic decision.

Specifically, the issue at stake was whether the rule set out in Article 7(2) of the Portuguese Stamp Duty Code – according to which the stamp duty exemption provided for short-term treasury operations would be applicable when two resident entities were involved or when the borrower was resident in Portugal (with the lender being resident in a Member State of the European Union), but would no longer be applicable when the borrower was resident in a Member State and the lender was resident in Portugal – was or was not (in)consistent with the principles of non-discrimination and free movement of capital, established in Articles 18, 63, and 65(3) of the Treaty on the Functioning of the European Union, applicable in the Portuguese legal system pursuant to Article 8(4) of the Constitution of the Portuguese Republic.
Although several arbitration decisions favoured Faurécia and Abreu Advogados, a contrary decision paved the way for the filing of a highly demanding Appeal for Uniformity of Jurisprudence before the Supreme Administrative Court.

For the first time in history, the Court of Justice of the European Union was called to rule on this matter, and did so unequivocally, siding with Faurécia and validating the arguments advanced by Abreu Advogados.
Following the conclusion reached by the Court of Justice of the European Union in the case between Faurécia and the Portuguese Tax Authorities, the Supreme Administrative Court has established uniform case law to the effect that “Article 7(2) of the CIS (in the versions prior to Law No. 12/2022 of 27 June – OE 2022), by limiting the existence of the exemptions provided for in subparagraphs h) and g) of that article to cases where the creditor (and not the debtor) has its registered office or effective management in another Member State of the European Union or in a State with which Portugal has a double taxation agreement on income and capital, constitutes a violation of the free movement of capital, as provided for in Article 63 of the TFEU”.

The impact was immediate: the legislator was compelled to amend the Stamp Duty Code, eliminating the discrimination identified and aligning Portuguese tax law with EU principles.

Thus, the Faurécia case is now considered a milestone in Portuguese and European tax litigation, both for the innovation of the legal issue and for its practical, legislative, and jurisprudential repercussions, allowing multinational groups of companies that use Cash-Pooling as a cash management tool to benefit from greater legal certainty regarding the tax treatment of intra-group financial flows.