Decision No. No. 139/1 issued by the Minister of Finance on 12/03/2019 (hereinafter), has defined the implementing provisions of article 41 of the Asset Securitization Law No 705 dated 09/12/2005. This Decision confirms an administrative practice rejected by the Council of State (Decisions No. 180 and 181 dated 29/11/2016 – BSEC/ State of Lebanon) which aims to subject to VAT the mutual funds and the activities undertaken by the managers of said funds and more specifically securitization transactions; although, on the one hand, the VAT law considered as subject to the tax only entities with legal personality (Article 3)- something that is denied to the fund – and exempted from the VAT in an explicit way all financial transactions related to the securitization and management of mutual funds (Article 16 (4) of Law No. 379/2001 and Decree No. 7485 dated 27/02/2002 – exemption that extends to all banking and financial services and activities as well as all entities which activities are licensed by the BDL); and on the other hand, owing to exemptions specific to securitization which exempt all transactions undertaken by a third party (the manager) on behalf of and in the name of the fund. Bearing in mind that the aforementioned Article 41 of the Law No. 705 doesn’t include any provision intended or referring to a decision or to a Decree in order to define the implementing provisions of the text or to clarify them. In addition, the said Decision applied the tax rate of 10% to both profit distributions (dividends) and interests generated by bonds and securities, although the text of the Law doesn’t provide the word “interest” (Article 41(4) of the Law No. 705/2005) and that the latter should normally be subject to the special tax of 7% (Article 51 of the Finance Law No. 497/2003).
It should be noted that the Decision No. 139/1 has interpreted implicitly the intention of the legislator and even distorted it by adding provisions which are not envisaged by the law. Therefore, it is to be feared that this does not correspond to an extensive interpretation of the law and therefore to an excess of power and consequently to an infringement of the principle of parallelism of forms and competences and hierarchy of norms, given that a law can only be changed by another law. In this respect, and as stated in the Administrative Jurisclass (Fasc 1152, n ° 99 and 100): “are in particular vitiated by error of law, decisions based on grounds which are not provided for by the law, those which, more widely, manifest an incorrect interpretation of the rule and those which distort the powers granted to the authority … impose a condition which is not provided by law and contrary to the applicable rule, whether the law or a regulation , is a frequent case of error of law”.
Needless to precise in this regard that such decision may be qualified and considered as an action ultra vires (عمل تنظيمي ضار يتجاوز حدّ السلطة) in accordance with articles 65 and 105 of the State Council’s regulations (Legislative-decree No 10434 dated 14/6/1975 and its amendments) and may be challenged as such within a two months delay as of its publication.