Cash pooling, a centralized treasury management instrument used by groups of companies to optimize liquidity, reduce financial costs or minimize external financing needs, is increasingly common, especially among companies with multinational operations. However, one of the points that generates the greatest uncertainty and debate among companies, tax advisors and tax authorities is to know when and to what extent these operations imply taxation — especially Stamp Duty (IS) in Portugal — and which exceptions or exemptions may apply.

Based on our firm’s experience with various clients — national and multinational, with intra-group operations in several Member States — we analyze the main issues, risks, as well as recent legislative and jurisprudential changes that should be borne in mind for the prudent management of these structures.

Legal framework and historical problematic

The regime applicable to Stamp Duty on financial transactions, including cash pooling, is regulated in the Stamp Duty Code (CIS), particularly in the articles that deal with “credit use” operations. Item 17.1.4 of the General Table of Stamp Duty is levied on “the use of credit in the form of a current account, bank overdraft or any other form in which the term of use is not determined or determinable, on the monthly average…”.

Historically, such a regime applied regardless of whether or not there were exemptions, and some exemptions provided for in the CIS (such as for short-term operations or coverage of cash shortages) required certain criteria to be present – group/domain relationship between the intervening entities, term of less than one-year, clear treasury purpose, etc.

Among the main points of controversy that are encountered in our clients’ cases, the following stand out:

• Territoriality/residence: if the borrower or lender (or both) are non-residents — but within the European Union or double tax treaty states — what treatment applies?
• Moment or nature of the tax event: granting vs use of the credit; reporting and settlement obligations; who is the taxable person.
• Term criterion / “short term”: in order to have specific exemptions, it is often required that the contract or loan be short-term (less than one year) or to cover cash shortages.
• Compliance with formal and substantial requirements: proof that the transaction effectively has a treasury purpose, that the entities are group/domain as legally defined and that there is no abusive planning, for example.

Recent developments: legislation and court decisions

In recent years, the legal framework and interpretation have changed, some caused by rulings of the Court of Justice of the European Union (CJEU), others by internal clarifications, budgetary legislation and, in some cases, tax arbitrations.

Some important milestones:

1. State Budget Law for 2020 – express introduction of Stamp Duty exemption for loans granted by companies under a centralized cash pooling agreement, in favor of companies with which there is a control or group relationship.
2. Legal restriction until 2021 – Article 7(2) of the CIS excluded the application of the exemption in cases where the debtor (borrower) was a non-resident in Portugal. In other words: the exemption was only applicable if the borrower resided in Portugal (or was from a Member State/country with a DTC) and there was a group relationship.
3. Changes in 2022 – the State Budget Law amended the territoriality rule, in order to include in the scope of the exemption “situations in which the creditor or debtor has its registered office or effective management in another Member State of the European Union or in a State in which a convention for the avoidance of double taxation on income and capital agreed with Portugal is in force.” In this way, there is a legal opening for exemptions to also apply in cross-border contexts, provided that certain requirements are met.
4. CJEU judgment in Case C-420/23 (20 June 2024) – decisive in clarifying that Portuguese legislation until 2021, which exempted short-term treasury operations only when both entities were resident in Portugal or when the borrower was resident, but not when the borrower was resident in another Member State, was contrary to Article 63 TFEU (free movement of capital). This judgment reinforces that differences in treatment based on the residence of the borrower or creditor, without objective justification, are incompatible with the European regime.

Hands-on experience with Belzuz customers

From the experience with our clients, conclusions and practical lessons emerge:

• Many groups avoided formalizing cross-border cash pooling contracts or suffered Stamp Duty settlements when the lender or borrower was a non-resident, based on a restrictive interpretation of the territory rule.
• In cases where access to the exemption provided for was sought, it was common to have resistance or discussion with the Tax Authority about proof of the purpose of treasury — if there is in fact “coverage of grace periods”, if the period is less than one year, if the entities are of a group/domain as legally defined. The documentation used was often not enough.
• With the legal changes and the CJEU ruling, our clients have started to rethink their cash pooling structure to ensure that all the requirements for exemption are met, including considering loans with entities from other Member States or non-resident lenders, as long as there is a double tax treaty.
• In some cases, it was possible to obtain recovery or review of stamp duties paid, on the basis of ex officio or even litigation review requests, for periods prior to 2022, especially for transactions where the borrower was resident in another Member State, given the basis of the 2024 CJEU ruling.

Points of attention and risks

Despite the positive development, there are still risk areas that our companies should consider:

1. Strict compliance with legal requirements — not all exemptions are automatic. If any of the requirements are missing — for example, a term of more than one year, lack of a clear group/domain relationship, questionable treasury purpose, failure to prove documentation, or if the lender’s or borrower’s state does not have a double tax treaty — there may be liquidations.
2. Differences in the interpretation of the Tax Authority — despite the legal changes, the AT has not always interpreted all the rules in line with European decisions, especially in borderline cases. Prudence is to document operations well, demonstrate economy, formalize cash pooling contracts with clear clauses, record balances, define transparent compensation criteria, etc.
3. Future case law – the CJEU ruling of 2024 resolves part of the disputes, but other concrete cases may still result in litigation, especially in international transactions with complex structures, changes in credit/debit position between entities in the group, or in transactions with financial institutions or banks as intermediaries.
4. Compliance and tax control costs — preparing appropriate documentation, conducting risk analysis, benchmarking interest rates (transfer pricing, where applicable), and ensuring that structures are not seen as abuse or attempted tax evasion or avoidance.

Perspectives and recommendations

Based on what has been happening with our clients, and in light of recent legislation and CJEU case law, we leave you with some prudent recommendations:

• Structure cash pooling operations in such a way that they meet the requirements for exemption: term of less than one year or evidence of short-term financing, liquidity/treasury purpose, existence of a group/domain relationship as defined by law.
• Verify effective residence/direction and existence of double tax treaty between Portugal and the State of the lender or borrower, as this can determine whether the exemption applies or not.
• Solid documentation: written contracts, clauses that clearly identify who the lender and borrower are, nature of the transactions, compensation criteria, deadlines, method of calculating the “use of credit”, proof that it is not disguised external financing.
• Tax simulations: before implementing structural changes, comparing scenarios with and without exemption, documentation costs, settlement risks, etc.

And one last suggestion for entities whose cash pooling operations were effectively subject to stamp duty until 2022. They should carry out retrospective analyses, reviewing previous periods, especially up to the first half of 2022, to assess whether there is a basis for requesting a refund or review of Stamp Duty assessments that may have been unduly applied, in light of the CJEU ruling.

Our office has a specialized tax team that can advise you with these requests.

Conclusion

The good news is that the legislative and jurisprudential landscape in Portugal is effectively moving towards a more favourable regime for cash pooling, including in international operations. The CJEU judgment of June 2024, as well as the modifications introduced in the Budget Law, offer a more secure basis for the application of Stamp Duty exemptions for many cases that were previously uncertain or subject to risk.

However, it cannot be thought that all cash pools will automatically be exempt — and each operation needs to be well structured: confirm that all requirements are met, formalize correctly, assess risk, and be prepared for litigation or requests for review, if necessary.

You can count on the help of the Tax Department of Belzuz Advogados, whose experience has shown that those who act proactively — structuring operations well, anticipating risks, following legal and jurisprudential developments — end up gaining a lot: in tax security and reduced costs.