In the Official Journal of the European Union of September 19, 2022 the questions that the Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa — CAAD) (Portugal) referred to the Court of Justice of the European Union for a preliminary ruling were published. The questions were lodged on May 24, 2022 and regard the case Cofidis versus Autoridade Tributária e Aduaneira.

 

Questions referred for a preliminary ruling

1   Does Directive 2014/59/EU of 15 May 2014 preclude the taxation in a Member State of branches of financial institutions resident in another Member State of the European Union, pursuant to legislation such as the Portuguese national rules governing the additional solidarity tax on the banking sector, which is levied on the adjusted liabilities and notional value of off-balance sheet derivative financial instruments and from which the revenue collected is not allocated to national financing arrangements for resolution measures or to the financing of the Single Resolution Fund?

2   Does the freedom of establishment enshrined in Article 49 TFEU preclude national legislation such as that laid down in the Portuguese national rules governing the additional solidarity tax on the banking sector, which permits the deduction from the liabilities, as determined and approved, certain liability items which are taken into account for the purposes of the calculation of tier 1 and tier 2 own funds, in accordance with the provisions of Part II of Regulation (EU) No 575/2013 (2) of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, taking into account the transitional provisions laid down in Part IX of that Regulation, which may be issued only by entities with legal personality, in other words, which may not be issued by branches of non-resident credit institutions?

 

Background

The relevant facts for the purposes of assessment of the present case are set out below:

a)  The applicant is the branch in Portugal of Cofidis, S.A., a French credit institution having its registered office and effective management in France.

b)  Since 1996, Cofidis, S.A. has been present in Portugal through the applicant.

c)  On 11 December 2020, the applicant carried out a self-assessment to the ASSB in relation to the annual average of the final monthly liability balances reflected in the accounts for the first half of 2020, and it filed the appropriate return using standard form 57.

d) After filing the return, an assessment notice was issued for an amount of ASSB equal to EUR 364 229.67, which was paid in full by the applicant.

e)  On 5 January 2021, the applicant submitted an application for review in relation to the ASSB self-assessment notice.

f)   On 21 May 2021, the divisional head of the Central Department of the Tax Justice Division of the Major Taxpayers Unit gave a decision dismissing that application in the context of his delegated powers

g)  On 23 August 2021, the applicant lodged this application for arbitration.

 

A number of the complaints put forward by the applicant against the ASSB self-assessment notice are based on an assessment of the compatibility of that tax with European Union law, in particular with the fundamental freedom of establishment enshrined in Article 49 TFEU and with Directive 2014/59/EU of 15 May 2014.

 

The ASSB was established by Article 18 and Annex VI of Lei n.º 27-A/2020, de 24 de Julho, que aprovou o Orçamento Suplementar para 2020 (Law No 27-A/2020 of 24 July approving the supplementary budgets for 2020).

That tax was created with the aim of strengthening the financing arrangements for the social security system through the allocation to the FEFSS of the revenue obtained through collection of the tax, as is apparent from Article 1(2) and Article 9 of Annex VI.

In accordance with Article 1(2) of Annex VI, the creation of the ASSB and its exclusive application to the banking sector was justified as a form of offsetting the exemption from VAT of most financial services and transactions, thereby placing the tax burden borne by the financial sector on an equal footing with that levied on other sectors.

 

Pursuant to Article 2(1) of Annex VI, the following are taxable persons liable to the ASSB: (a) credit institutions resident in Portugal, (b) subsidiaries in Portugal of credit institutions resident in other States, and (c) branches in Portugal of credit institutions resident in other States.

For the purposes of application of the ASSB, ‘credit institutions, subsidiaries and branches’ mean the entities defined in points u), w) and ll) of Article 2A of the Regime Geral das Instituições de Crédito e Sociedades Financeiras (General Rules on Credit Institutions and Financial Companies), adopted as an annex to Decree-law No 298/92 of 31 December.

 

As regards the objective scope, Article 3 of Annex VI stipulates that the ASSB is levied on the adjusted liabilities and the notional value of off-balance sheet derivative financial instruments, both of which are determined for accounting purposes at the end of the financial year. That article provides, inter alia, as follows:

 

Article 3 - Objective scope

The additional solidarity tax on the banking sector is levied on:

a)  liabilities calculated and approved by taxable persons after deduction, as appropriate, of liability items which form an integral part of own funds, deposits covered by the guarantee of the Deposit Guarantee Fund, the Mutual Agricultural Credit Guarantee Fund or a deposit guarantee scheme officially recognised in accordance with Article 4 of Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes or considered to be equivalent pursuant to Article 156(1)(b) of the General Rules on Credit Institutions and Financial Companies, within the limits stipulated in the applicable legislation, and deposits made in the Central Bank by agricultural credit banks belonging to the integrated agricultural credit scheme in accordance with Article 72 of the Regime Jurídico do Crédito Agrícola Mútuo e das Cooperativas de Crédito Agrícola (Legal Rules governing Mutual Agricultural Credit and Agricultural Credit Cooperatives), adopted as an annex to Decree-law No 24/91 of 11 January;

b)  the notional value of off-balance sheet derivative financial instruments determined by taxable persons.

 

Article 4 of Annex VI contains the following definition of liabilities:

Article 4 - Determination of the basis of assessment

1   For the purposes of Article 3(a),’ liabilities’ shall mean all items entered in the balance sheet which, irrespective of their form and type, represent a debt to third parties, with the exception of the following:

a)  items which, in accordance with the applicable accounting rules, are treated as own funds;

b)  liabilities connected with the recognition of obligations derived from defined benefit schemes;

c)  deposits covered by the Deposit Guarantee Fund and the Mutual Agricultural Credit Guarantee Fund, only to the extent that they are covered by those funds;

d)  liabilities derived from the valuation of derivative financial instruments;

e)  deferred revenue, disregarding any such revenue corresponding to debit transactions; and

f)   liabilities in respect of assets which have not been derecognised in securitisation transactions.

2   for the purposes of Article 3(a), the following rules shall apply:

a)  the value of own funds, including tier 1 own funds and tier 2 own funds, includes the positive items which are entered in the accounts for the purposes of their calculation in accordance with Part II of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, taking into account the transitional provisions laid down in Part X of that Regulation, which, at the same time, come within the concept of liabilities as defined in the previous paragraph;

b)  deposits covered by the guarantee of the Deposit Guarantee Fund, the Mutual Agricultural Credit Guarantee Fund or a deposit guarantee scheme officially recognised in accordance with Article 4 of Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014, or considered to be equivalent pursuant to Article 156(1)(b) of the General Rules on Credit Institutions and Financial Companies, within the limits stipulated in the applicable legislation, shall be taken into account only up to the amount actually covered by those Funds.

 

Accordingly, the question that arises in connection with the compatibility of the ASSB with the fundamental freedom of establishment enshrined in Article 49 TFEU concerns whether taxable persons may deduct from their liabilities, as determined and approved, the value of own funds and certain liability items which they take into account for the purposes of the calculation of tier 1 and tier 2 own funds, in accordance with the provisions of Part II of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013, an option which is open to resident credit institutions but not to branches of non-resident credit institutions, in so far as they correspond to instruments which may be issued only by entities with legal personality.

 

As regards compatibility with Directive 2014/59/EU of 15 May 2014, it is necessary to determine, essentially, whether it is permissible for branches of financial institutions resident in other EU Member States to be taxed in Portugal under a national scheme like the ASSB, which is levied on adjusted liabilities and the notional value of off-balance sheet derivative financial instruments and the revenue from which is not allocated to national financing arrangements for resolution measures or to the financing of the Single Resolution Fund.

 

 

 

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