The Unconstitutionality of the Portuguese Stamp Tax: A Case Against the Indebtedness Levy

Introduction

The Portuguese Stamp Tax (Imposto do Selo, “IS”) is one of the most archaic fiscal instruments still in force within the national tax system. Originally conceived as a tax on documents, acts, and contracts, it reflected the reality of a formalist economy in which the creation and circulation of documents were the central vehicle for validating transactions. Over time, however, the tax lost its connection to the formal elements of juridical acts and became, instead, a convenient and straightforward means for the State to raise revenue.

This article argues that, in its present form, and particularly as applied to financing operations, the Stamp Tax is unconstitutional. It contradicts the principle of contributive capacity (capacidade contributiva), which underlies the legitimacy of any taxation in a democratic rule-of-law State. By taxing indebtedness, the Stamp Tax no longer reflects a genuine manifestation of wealth or economic ability, but rather penalises an act of necessity.

The Principle of Contributive Capacity

The Portuguese Constitution enshrines equality and contributive capacity as cornerstones of the tax system. Article 104 requires that taxes be proportionate to income and wealth and ensures that citizens contribute according to their real economic ability.

Contributive capacity is not a mere formality. It is the constitutional rationale for taxation. A tax must always correspond to an actual manifestation of wealth, consumption, or income. Without such a link, taxation risks becoming arbitrary, breaching legality and undermining the rule of law.

The Archaic Nature of the Stamp Tax

The Stamp Tax was introduced as a levy on documents and written acts. Its logic was straightforward: to tax the formalisation of legal relationships. In the nineteenth century, such reasoning might have made sense, since documents were the tangible expression of juridical life.

In the twenty-first century, this rationale is obsolete. Documents are no longer the primary expression of economic capacity. The Stamp Tax now functions as a convenient revenue source, detached from its original justification. This detachment is most evident in financing operations, where the constitutional weaknesses of the tax are starkest.

Financing Operations as a Taxable Event

According to the Portuguese Tax Authority, financing operations granted by or obtained from resident entities are subject to Stamp Tax. The taxable base is the loan amount, with the tax levied on an ad valorem basis.

At first glance, this may appear to capture economic capacity: the temporary availability of capital. Some authors argue that such availability constitutes contributive capacity.

This view does not withstand scrutiny. Borrowing does not increase net wealth. It generates both an asset (temporary use of funds) and a liability (repayment of capital, usually with interest). These balance each other. The borrower’s net position is unchanged or worsens once repayment costs are considered. To treat temporary use of funds as wealth is to misinterpret economic reality.

The Absence of Contributive Capacity in Indebtedness

Indebtedness is not a manifestation of wealth but rather of need. For individuals, it often signals financial insufficiency; for companies, it is a mechanism for investment or survival.

From a constitutional perspective, taxing indebtedness disregards the requirement that taxation correspond to genuine economic ability. The borrower must repay the loan and simultaneously bear the fiscal burden of the Stamp Tax. Far from being neutral, the tax aggravates financial fragility and penalises initiative.

The Problem of Territoriality

The Tax Authority has argued that all financing operations granted by Portuguese resident entities are subject to Stamp Tax, even where the funds are made available abroad and the borrower is a non-resident.[1] This raises serious concerns. If the alleged manifestation of contributive capacity is the temporary use of capital, and this occurs abroad, there is no sufficient territorial nexus to justify Portuguese taxation.

To extend the Stamp Tax to situations where the economic reality unfolds outside Portugal is inconsistent with territoriality principles and violates constitutional legal certainty.

This highlights the fragility of the construct: by seeking to capture revenue irrespective of territorial limits, the Stamp Tax reveals itself as an arbitrary exaction rather than a legitimate fiscal measure.

Time for Constitutional Scrutiny

Given these contradictions, it is time for the Portuguese Constitutional Court to conduct a genuine scrutiny of the Stamp Tax. The Court must assess whether taxing financing operations aligns with the principles of a democratic rule-of-law State and with contributive capacity.

Until now, jurisprudence has tolerated the tax, often pointing to history or legislative discretion. Yet history cannot justify constitutional breaches, and convenience cannot override principles. If contributive capacity is to retain meaning, taxation of indebtedness cannot stand.

Comparative Perspective

Comparatively, Portugal is an outlier. In many jurisdictions, similar stamp duties have been abolished or limited. The United Kingdom eliminated levies on loans, restricting stamp duty to real estate and securities. Other European states have narrowed or restructured such taxes into more transparent forms.

Portugal’s persistence with the Stamp Tax is, therefore, both constitutionally questionable and economically outdated. It penalises borrowing and undermines dynamism.

Conclusion

The persistence of the Stamp Tax in Portugal, particularly in its application to financing operations, is difficult to reconcile with constitutional principles. The key issue is clear: indebtedness does not represent contributive capacity. The borrower gains no net enrichment; instead, they assume a liability equal to or greater than the temporary benefit received.

Moreover, the extraterritorial reach of the tax further undermines its legitimacy, raising questions of nexus and certainty.

Finally, this taxation is highly detrimental to the competitiveness of Portuguese companies, which face structural disadvantages compared to counterparts in jurisdictions where similar levies have been abolished.

For these reasons, the time has come for constitutional reckoning. The Stamp Tax, in its current form, is outdated, arbitrary, and unconstitutional. The Constitutional Court should align Portugal’s tax system with the principles of a democratic rule-of-law State, ensuring that only genuine manifestations of contributive capacity are taxed.

[1] We do not subscribe to this interpretation. See Miguel Teixeira de Abreu & Mariana Gouveia de Oliveira, “O princípio da territorialidade nas operações financeiras com não residentes em sede de imposto do selo”, Coimbra: Almedina, 2013 (Estudos Instituto do Conhecimento AB). Available at https://www.abreuadvogados.com