CAAD 160/2018-T: IRC Credit Assignment Below Nominal Value - Interest and Impairments Treatment

ARBITRATION AWARD

The arbitrators Judge Advisor Dr. Carlos Alberto Cadilha (arbitrator-president), Doctor Tomás Cantista Tavares and Dr. Henrique Fiúza (arbitrators-members), designated respectively by the Deontological Council of CAAD, by the Claimant and by the Respondent to form the Arbitral Tribunal, agree as follows:

1. Report

A... SGPS SA, a legal entity ..., with registered office at Rua ..., ..., Cascais (hereinafter A... or claimant), filed a request for constitution of a collective arbitral tribunal, in accordance with the combined provisions of Articles 2, No. 1, paragraph a) and 6, No. 2, paragraph b) of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter RJAT), in which the Tax and Customs Authority (hereinafter TA) is the Respondent, with a view to declaring the illegality of the Corporate Income Tax (IRC) assessment, in the capacity of parent company, with number 2017..., relating to the year 2013, with the amount payable for tax and interest of €1,589,518.61 (document no. 1 of the Initial Request).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and followed its normal procedure.

The collective tribunal was constituted on 5/7/2018. Due to illness of one of the arbitrators, the decision was extended by two months (Article 21, No. 2 of the RJAT).

The TA responded by challenging, arguing that the request should be ruled unfounded.

By unnecessary formality and agreement between the parties, the meeting required by Article 18 of the RJAT was dispensed with. The parties submitted written arguments.

The arbitral tribunal was regularly constituted and is materially competent, as provided in Article 2, No. 1, paragraph a) and Article 4, both of the RJAT.

The parties have legal personality and capacity, are legitimate and are represented (Articles 4 and 10, No. 2 of the same instrument and Articles 1 to 3 of Order No. 112-A/2011, of 22 March).

The case does not suffer from any nullities and there is no obstacle to the examination of the merits of the case.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven as relevant to the decision:

• A... is a Company Managing Holding Interests, an entity that exercises (and exercised at the date of the facts), by legal obligation, the management of shareholding interests in other companies, as a form of exercising economic activities (Article 1, No. 1 of Decree-Law No. 495/88, of 30/XII).

• In 2013, A... was the parent company of a group of companies that chose to submit itself to the Special Tax Regime for Groups of Companies, which included the subsidiary company B..., Unipessoal, Lda (hereinafter B...).

• Until 2013, A... held 8.38% of the share capital of C..., SA and had made (i) ancillary contributions, (ii) advances and loans of several tens of millions of euros to that investee company.

• C... held as its main asset D..., the fourth fixed telecommunications operator.

• D... was in a fragile economic and financial situation (heavily indebted and with negative equity of 59 million euros) and operational (the company was not succeeding in the telecommunications business, whose market was already saturated, dominated in fierce competition by the three major existing operators [.../...,.../...,...).

• In 2013, A... sold to the E... group all its interests in C... (share capital, ancillary contributions, advances and other loans) for a value much lower than the investment made.

• Among others, it sold the loans (F... and 2012 advance): the sale price was €10,655,690.00; and the respective acquisition cost, based on the value of the outstanding loans of €24,500,000.00 + €14,695,897.15 + €1,312,000.00; which totaled €29,852,708.15 in total expenses.

• In 2011, faced with the financial difficulties of the debtor (C...), a third amendment was made to the F... contract, whereby interest would only be owed if there was available cash flow, which did not occur in the years 2011 to 2013.

• In 2013, the debtor C... recorded, as an expense, the interest subject to that condition.

• In 2013, the creditor (Claimant), in the list of credits assigned to the E... group, also included that value of these income items (interest on F... after the 3rd amendment).

• B... (the company that is part of the claimant's tax group) constituted certain losses by impairment, not only on the basis of mere passage of time (period of default), but taking into account the specific situation of each credit – in the assessment it made regarding the uncollectibility of each of those credits.

• Whenever an impairment was made in tax terms, it had already been made or was made in accounting terms (for the same value); there are no tax impairments without prior recognition at the accounting level (existence and amounts).

• Impairments by default were never made at a percentage exceeding the value that is accepted in tax terms at any given time.

• For the following customers, there were collection efforts: Client H... (€1,152.81) – the emails and correspondence (document no. 15 of the PI) prove meetings between creditor and debtor for collection attempts; negotiations for that purpose; possible forms of settlement with staggered payments and in a pre-litigation scenario; Client G... (€7,733.25) – the letters exchanged and emails (document no. 16 of the PI) prove the creditor's efforts to collect and negotiate payment of the debts.

2.2. Unproven Facts

There are no facts with relevance to the examination of the merits of the case that have not been proven.

2.3. Rationale for the Determination of Factual Matters

The proven facts are based on documents provided by the parties, on the consensus of the parties (also regarding documents, values and payment dates), on official information and other documentation contained in the administrative file.

3. Matters of Law

3.1. Question to be Decided and Arguments of the Parties

As accepted by the parties, there are three clusters of questions to be decided in this proceeding.

a) Acceptance or non-acceptance for tax purposes (in accordance with Articles 23 and 41 of the CIRC) of losses from the sale to third parties of advance credits on C... below nominal value (in the amount of €29,852,708.15 correction to taxable income).

The TA does not accept this expense for tax purposes, on two cumulative grounds: because allegedly the indispensability of the expense is not proven, in accordance with Article 23 of the CIRC; and because as the advances derive from credits not resulting from normal activity, they would only be fiscally deductible if the tax requirements of uncollectible credits under Article 41 of the CIRC were met, which would not occur in this case, in the TA's view, namely because the debtor did not have an insolvency proceeding or similar.

The Claimant argues, conversely, that this expense should be fiscally deductible, by meeting the requirements of Article 23 of the CIRC (real and indispensable expense for the claimant) and by the non-application of the content of Article 41 of the CIRC to this case, given the material, economic and legal differences between that situation and the assignment (sale) of assets.

b) Alleged undeclared income for the tax year 2013 (in accordance with Articles 17, 18 and 20 of the CIRC), resulting from interest for remuneration of F... (€2,076,623.64 correction to taxable income).

The claimant withdrew from and did not contest the following matters: (i) interest for remuneration of the advance of €1,312,000 (€69,537.10 correction to taxable income) and (ii) management fee income (with €181,451.61 correction to taxable income) – see Articles 102 et seq. of the Arbitration Request.

The TA considers that there is interest income in 2013, despite the 3rd amendment to the contract, which conditioned it upon the verification of available cash flow, for two essential reasons: (i) C... (the debtor) recorded those sums as an expense for the tax year, despite non-fulfillment/verification of the condition; (ii) the Claimant in including that interest in the assets transacted is assuming its existence: no one can alienate a thing that did not previously belong to them.

The Claimant argues, in its defense, essentially that the accounting and tax treatment of C... is wrong and does not bind it (as it is not the one that adopted this decision); on the other hand, the Arbitration Award in proceeding 78/2017-T (which annulled the 2012 assessment based on the attribution of F... interest, because the condition subordinating its existence was not verified) strengthens its thesis and would require the annulment of the contested assessment (2013 IRC).

c) Corrections to the taxable income of B..., which include: i) excess constitution/strengthening of losses by impairment, in the total amount of €131,274.65; ii) and alleged failure to prove collection efforts, of €8,886.06.

For the excess in the constitution/strengthening of losses by impairment, the TA understands that the period of default (25% for six months, 50% between 6 and 12 months...) is mandatory for the constitution of impairment; and if this does not occur, it constitutes a lost portion that cannot be recovered in subsequent years.

The claimant argues, conversely, that the tax law should not have that meaning and is not compatible with such a closed interpretation: the taxpayer only has to constitute the impairment when concluding that there is a probability of uncollectibility of the credit; and at that moment must respect the percentage of impairment imposed by tax law, recording that impairment for the same value (in that tax year or in an earlier one).

Regarding the alleged failure to prove collection efforts: the TA understands that the claimant did not prove collection efforts (€8,886.06) in relation to customers H... and G..., except as regards the latter, for the amount of €5,287.25, in invoices 342, 343 and 344 (see Articles 121 and 253 of the Response).

The claimant argues, conversely, that it made usual external collection attempts in relation to credits for these two customers (and provided documentation to prove it – documents no. 15 and 16 of the Initial Request).

For systematic convenience, each of these questions will be decided in separate chapters developed below.

3.2. Acceptance or Non-Acceptance for Tax Purposes (Articles 23 and 41 of the CIRC) of Losses from the Sale to Third Parties of Advance Credits on C... Below Nominal Value (Amount of €29,852,708.15 Correction to Taxable Income)

The Laws

According to Article 23 of the CIRC (in the wording and numbering at the date of the facts), the following are considered costs or expenses: "1. [...] those that are demonstrably indispensable for the realization of income subject to tax or for the maintenance of the income-producing source, in particular: (…)

Article 41 of the CIRC (in the wording and numbering at the date of the facts) states that "1. Uncollectible credits can be directly considered expenses or losses of the tax period provided that: a) such results from an insolvency and business recovery proceeding, from execution of a judicial proceeding of an out-of-court settlement for the viability of companies in an insolvency situation or in difficult economic situation mediated by IAPMEI [...], from a decision of an arbitral tribunal in the context of litigation arising from the provision of essential public services or from credits that are prescribed in accordance with their respective legal framework for the provision of essential public services and, in this case, its value does not exceed €750 and b) loss by impairment has not been admitted or, if so, is shown to be insufficient".

Decision:

The proven facts allow us to conclude that there undoubtedly existed a sale of assets (advances and credits) for a price lower than their acquisition cost, (i) within the scope of an overall business transaction (the Claimant divested itself of all interests in C...– shareholdings and all credits); (ii) with economic justification (the debtor (C...) was in financial difficulties) – and, therefore, the sale price, despite being lower than the acquisition cost of those assets, reflects their fair economic value at the date of the transaction – it was the price that an impartial third party (the E... group) was willing to pay for those assets.

The sale of the asset at issue in this proceeding (advance credits) constitutes a non-simulated transaction (the TA does not invoke this) between entities without special relationships, in which each of the parties sought the best agreement – and the agreed price corresponds to the normal bargaining capacity, in freedom of contract, in the economic "game" of supply and demand, relative to the value of the asset to be transacted.

There is no doubt, moreover, that A... suffered a genuine and irreversible economic loss, with accounting reflection: it sold a set of assets (including advance credits) and received for them a value much lower than their acquisition cost (and the value it had loaned to C...).

In principle, a genuine economic and accounting cost is also a tax cost. The rule of dependency between accounting and IRC imposes this (described in Article 17, No. 1 of the CIRC).

On the other hand, there is no specific tax rule (adjustment rule) that prevents or restricts the tax effect of the accounting expense with the assignment of credits at issue (we will refer below to Article 41 of the CIRC).

The term "indispensability" in Article 23 of the CIRC cannot be interpreted as containing a clause that allows the TA to scrutinize the taxpayers' choices to incur real costs, even if unusual or of high value. The principle of freedom of management (and non-interference by the State in legitimate choices by companies to sell or not sell assets) implies the irrelevance of arguing about the indispensability of the expense, based on the alleged lack of opportunity of the assignment, and when opining on the taxpayer's activity or indicating that the intention of this transaction was to generate a tax loss. Thus, an economic interpretation of the word indispensability is advocated, in the sense that the tax expense is equivalent to the actual expenses incurred by the taxpayer, in the pursuit of its activity, and generated within that organization – and which will therefore always have a necessary causal connection, in economic terms, with the revenue or with the maintenance of the organization. Moreover, the sale of any asset for a price lower than the acquisition cost has this inherent effect – and the decision to assign, with loss, is found in the realm of full freedom of companies to manage their interests as they see fit, disposing of assets as they wish to manage their interests, thus changing their line of business, exiting a business that went poorly, etc.

Making our own the clear ideas of Arbitration Award No. 37/2016-T (which annulled an assessment in a case similar to the one at issue): "the concept of indispensability of costs in Article 23, No. 1 of the CIRC does not require a causal link between costs and revenue; it suffices that the expenses have a relationship with the object of the company, are incurred within the scope of its activity or evidence a business purpose. It is for companies to decide which business options they consider preferable to ensure their interests. In truth, there is no legal support for the Tax and Customs Authority to reject the deductibility of expenses by considering that the business options of companies do not correspond to acts of management that the Tax and Customs Authority considers preferable".

The dimension of the loss does not create or require additional requirements in tax terms, in the sense of non-indispensability of the expense.

In the specific case, the claimant merely disposed of an asset, at the price it was able to obtain on the market, registering an actual expense, in its freedom of management – which, by that effect, is indispensable for its organization, in the obtaining of further revenue (the proceeds of that sale will be allocated to new activity by the claimant) and maintenance of the income-producing source (create a stop loss, by a free management choice, which the TA and the courts must respect).

Furthermore, the argument regarding Article 41 of the CIRC is irrelevant to the case at issue: first, because one cannot assert that advances (and their management, via constitution, payment or assignment) are credits that do not result from normal activity of a Company Managing Holding Interests, as the claimant is (Article 5, No. 1, paragraph c) and No. 2 of Decree-Law No. 495/88, of 30-XII).

And second, because one thing is the constitution of a loss, without realization (without sale to third party) of the asset, by impairment or uncollectible credits, and another is the sale (assignment of the asset).

There, in the constitution of loss without realization or sale, the legislator can create additional tax requirements for the tax acceptance of the loss (Article 41 of the CIRC), precisely because there was no realization and sale. The reasons are twofold: either it is still a potential loss; or it is made effective outside the model of a sale (assignment) of the asset, that is, outside the typical framework of realization, which is the act that legitimates, par excellence, the tax registration of the loss or gain, in qualitative terms (a legal-economic act that supports the tax fact in IRC – see Article 18, No. 1 and 3 of the CIRC) and in quantitative terms (the sale price establishes the value of the income or expense).

However, in the sale or assignment of credits the factual situation in Article 41 of the CIRC does not occur – and as a result, that provision does not apply to the case at issue, by the literal and teleological element (the reasons legitimizing Article 41 of the CIRC are not verified).

In the sale of credits with loss, the applicable tax regime can never be that of impairments or uncollectible credits, precisely because of the difference in base requirements. When a sale occurs, as in this case, there is an actual loss, with assignment to third party, with a price set by the intersection of supply and demand – and the regime for uncollectible credits in Article 41 of the CIRC does not apply, which presupposes the non-sale of the asset.

With the sale of the asset, the loss becomes actual and irreversible (with a value endorsed by an impartial third party, the negotiating counterparty, which tax law must accept and respect). In uncollectible credits under Article 41 of the CIRC there is no sale – but the credit loses value objectively, without the sale. And that provision must regulate the situations of tax acceptance of loss in that scenario. And what it says, fundamentally, is that without the sale the loss is only accepted if a given objective and external fact occurs (in quantitative and qualitative terms) – in an insolvency proceeding or similar, for the value set there.

Arbitration Award in proceeding 717/2016-T (which decided matters similar to those of the case at issue) confirms the ideas set forth, very clearly: "The distinction between the two situations is clear and is correctly made by the Claimant, supported by the judgment of the North Central Administrative Court of 29-11-2013, rendered in proceeding No. 1666/07.6BEPRT [...] on page 60: 'Uncollectible credits' and assignment of credits at a value lower than recorded are different realities with distinct tax treatments. One thing is to have a 'lost credit', whose uncollectibility is known to be definitive because it results from any of those judicial proceedings provided for in Article 39°. Another is to assign a credit at a value lower than recorded. These cases presuppose that the debt is collectable, but the company decides to assign the credit with loss".

For all these reasons, the tax assessment is annulled, in this respect, for violation of law and erroneous interpretation and application of Articles 23 and 41 of the CIRC.

3.3. Income for 2013 Not Declared (Articles 17, 18 and 20 of the CIRC): Interest for Remuneration of F... (€2,076,623.64 Correction to Taxable Income)

Relevant Laws Applicable to the Case:

Article 18 of the CIRC states, in No. 1: "income [...] is attributable to the tax period in which it is obtained [...], regardless of its receipt [...], in accordance with the regime of economic accrual"; and No. 3, paragraph a) provides: "for purposes of application of No. 1: a) proceeds relating to sales are generally considered realized [...] on the date of delivery or dispatch of the corresponding goods or if earlier, on the date when the transfer of ownership occurs".

In turn, Article 20 of the CIRC makes clear that "income from operations of any nature is considered, as a result of normal or occasional action, basic or merely ancillary activity, in particular: a) income relating to sale or provision of services [...]; c) of a financial nature, such as interest [...]".

Decision:

As results from the proven facts h) to K), in 2011, the parties (creditor the claimant and debtor C...), in freedom of contract with a view to just accommodation of their interests, decided, in a third amendment, that the credits from F... would no longer bear interest, given the financial difficulties of the debtor (C...). Or more precisely, that they would only bear interest if the debtor achieved a certain financial performance, which did not occur in the years 2011 to 2013.

In arbitration proceeding No. 78/2017-T it was discussed whether the claimant would or would not have to record (accounting and tax-wise) that revenue from interest, despite non-verification of the condition. The Award concludes (and correctly), that regarding the year 2012, "in light of the contract, in the version of the 3rd amendment, and of the subsequent right to interest, it must be concluded that the right to interest never entered the legal sphere of the claimant, as the condition to which its existence was made subject was not verified".

This principle stated in the Award is correct: there is no revenue in 2012, because the right to interest was not constituted. According to Article 18, No. 1 of the CIRC, the revenue was not obtained in 2012.

That is not, however, the question in this proceeding. In 2013, the claimant sold to the E... group the credits it had over C... – and it included (and sold) also the interest on F... from the years 2011 until the date of sale.

Now, one can only sell a thing if previously held by the taxpayer. The Claimant can only sell a credit if it previously considers it in its legal sphere. Either in prior tax years if already constituted previously; or in the year of sale, if by chance it only constitutes itself with the sale and by the effects of the sale to third party, by agreement between the parties. Thus, in 2013, immediately before the sale, the claimant would have had to consider itself possessing that interest (and therefore would have had to record that income in tax terms, and should have declared as tax revenue the amount of €2,076,623.64). And hence the legality of the additional assessment, in this segment of the decision. In 2013, with the sale to third party, the revenue from that interest must be considered obtained by the claimant, in accordance with Article 18, No. 1 and 3, paragraph a) of the CIRC.

This interpretation and position does not offend the constitutional principles of equality (and prohibition of arbitrariness), neutrality, contributory capacity, real income, right to private property and proportionality (in themselves, and as emanations of the principle of the democratic rule of law). If someone sells an asset (the right to interest from 2011 to 2013) – it is because they previously had to consider it as theirs, as entered and as revenue in their accounts. Either in prior tax year (if accrued) or in the year of sale (it is considered obtained by the parties, in view of being sold). And then, the obtaining implies its taxation as a revenue – and the subsequent sale, below nominal value, corresponds to an expense, as seen, for the negative value of the difference between the value of the credit and the assignment price.

This decision makes irrelevant to consider the argument of the need to record the revenue in 2013, by the fact that the debtor recorded the expense of that interest owed in its 2013 IRC.

For all these reasons, the contested assessment must be maintained, in this part.

3.4. Corrections to the Taxable Income of B...: i) Excess Constitution/Strengthening of Losses by Impairment (€131,274.65); ii) and Alleged Failure to Prove Collection Efforts (€8,886.06)

Regarding the Matter of Constitution/Strengthening of Losses by Impairment (€131,274.65)

The contested act labors under the understanding that the temporal period of default (25% for six months, 50% between 6 and 12 months...) would be mandatory for the constitution of impairment. Thus, for example, if there is default for 6 months, one would have to mandatorily make an impairment of 25% (provided that obviously the objective circumstances of paragraph b) and c) of No. 1 of Article 36 of the CIRC did not occur), and thus successively in light of the increasing accumulated percentages described in No. 2 of Article 36 of the CIRC; and if the claimant did not effect (as it did not in the matter now being analyzed) such percentage of impairment in face of the objective default of the credit (by its age), it constitutes a lost portion that cannot be recovered in subsequent years. If between 6 and 12 months it did not create a tax (and accounting) impairment of 25% – that portion would be lost and could never again be taken as a tax expense.

That is not, however, the correct interpretation of Articles 35 and 36 of the CIRC (wording and numbering at the date of the facts). The tribunal will follow here, mutatis mutandis, the content of the TCA South Award of 23/11/2010 (proceeding 03869/10).

Article 35, No. 1 of the CIRC provided: "The following losses by impairment recorded in the same tax period or in prior tax periods may be deducted for tax purposes": a) those related to credits resulting from normal activity which, at the end of the tax period, may be considered of doubtful collectibility and are evidenced as such in the accounts".

Article 36 of the CIRC stipulated: "1. For purposes of determining the losses by impairment provided for in paragraph a) of No. 1 of the previous article, credits of doubtful collectibility are considered those in which the risk of uncollectibility is duly justified, which occurs in the following cases: c) the credits are in default for more than 6 months from their respective maturity date and there is objective evidence of impairment and that collection efforts have been made". 2. The annual cumulative amount of the loss by impairment of credits referred to in paragraph c) of the above number cannot exceed the following percentages of credits in default: a) 25% for credits in default for more than 6 months and up to 12 months; b) 50% for credits in default for more than 12 months and up to 18 months; c) 75% for credits in default for more than 18 months and up to 24 months; d) 100% for credits in default for more than 24 months".

The law (Article 35, No. 1, paragraph a) and Article 36, No. 2 of the CIRC) indicates, and we are in the presence of the literal element, that taxpayers "may" effect impairments; it does not require that they "must" or "have to". This means that they may not effect the impairment, by mere passage of time: it all depends, after all, on a management judgment: if the company believes that despite the time of default, there is still no risk of uncollectibility, then it does not have to record the impairment, despite the period of default.

The literal/systematic element confirms this idea: the crucial requirement for the tax recording of impairment is the existence of "objective evidence of impairment" (Article 36 of the CIRC) beyond the period of default. That is, the mere passage of time does not suffice – objective evidence of impairment is required (assumption by the creditor that the credit is in default and consequent collection attempts) and furthermore, that the impairment be recorded in the accounts, in that period or in earlier ones.

Thus, if by chance the period of default has been exceeded (for example, more than 6 months) but there is no objective evidence of impairment, the taxpayer should not effect the impairment. And it effects it when it deems verified the probability of uncollectibility, but in this case, it must record the impairment in accounting terms, but never exceeding the percentage of impairment described in tax law, in light of the period of default. For example: if between 18 and 24 months it ascertains, for the first time, that there is objective evidence of uncollectibility, then it must make the impairment, if the other requirements are met (collection attempts and accounting recording), but the impairment cannot exceed, in that case, 75% of the credit.

The claimant was guided by this interpretive referential: it only recorded impairment when it deemed the existence of probability of uncollectibility; it always made impairments, with accounting recognition and with evidence of collection attempts; and, at each moment, it never created impairments at a percentage exceeding what is described in the law, in light of the age of the default.

In that sense, the annulment of the contested assessment is required, in this segment.

Regarding the Alleged Failure to Prove Collection Efforts (€8,886.06)

At this point, the discrepancy between the parties is essentially factual. Both agree on the requirement of proof of collection attempts, to legitimize the tax recording of tax impairment. The tribunal, having examined the documentary evidence (documents 15 and 16 of the initial request), understands that the claimant made proofs of efforts, in attempting to collect its credits from customers H... and G.... That is: those documents (some internal and others exchanged with the customers) denote collection attempts, negotiation on attempts to reach payment agreements, pre-litigation "threats" – all situations and usual efforts for creditors to assert their credits. The tribunal understands that such proofs do not have to be formal or have a high level of formal density; in freedom of proof, and faced with the circumstances of the commercial relationship between supplier and customer (in freedom of contract) it suffices that from the evidence produced one has the conviction that the creditor (claimant) made efforts with a view to collecting its credits – which occurred, manifestly, in the two situations of the customers in this case.

Thus, the annulment of the contested assessment is required, in this part.

4. Autonomous Taxation and Indemnification for Undue Guarantee

In light of the partial annulment of the contested assessment, it is necessary to draw the further consequences:

• The claimant will continue to have tax losses, but smaller than those self-declared (in light of the amounts not annulled in this proceeding of €2,076,623.64 correction to taxable income) – and thus, the increase of 10% in autonomous taxation rates is maintained as provided in Article 88, No. 14 of the CIRC.

• On 27/2/2018, the claimant provided a bank guarantee, in the amount of €2,020,000.00 to suspend the enforcement proceeding associated with the assessments contested in this arbitration (document 18 of the PI). The taxpayer has the right to be indemnified for the total costs of the guarantee, within the limits of Article 53 of the LGT, to be quantified in execution (voluntary or judicial) of Judgment, as the partial success of this arbitral action underlies a situation of verification of tax losses (and non-existence of assessment with tax to pay and therefore of non-existence of the legal nature of provision of guarantee). It is proven that, in judicial challenge (the arbitral action applies to this situation mutatis mutandis) there was error attributable to the services in the assessment of the tax, as it was the services of the TA that proceeded to an assessment deemed illegal by this tribunal.

5. Decision

In accordance with the foregoing, the Arbitral Tribunal agrees to:

• Rule the request for declaration of illegality of the contested IRC and compensatory interest assessment of 2013, on the claimant, in the capacity of parent company, with number 2017..., with the amount payable for tax and interest of €1,589,518.61 (document no. 1 of the Initial Request) to be partially well-founded.

• Annulling the following contested corrections (relating to (i) assignment of advance credits, of €29,852,708.15 correction to taxable income; (ii) impairment losses, of €131,274.65 correction to taxable income; and (iii) impairments and proof of collection, of €8,886.06 correction to taxable income;

• And not annulling the matter of interest for remuneration of F... (with €2,076,623.64 correction to taxable income)

And, in consequence:

• Condemn the TA to indemnify the claimant for the total costs of the guarantee, within the limits of Article 53 of the LGT, to be quantified in execution (voluntary or judicial) of Judgment.

6. Case Value

In accordance with Article 97-A, No. 1, paragraph a) of the Code of Tax Procedure and Process (CPPT) and Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €1,589,518.61.

Let it be notified

Lisbon, 4 March 2019

The Arbitrators

Carlos Alberto Cadilha (arbitrator-president),

Tomás Cantista Tavares (arbitrator-member)

Henrique Fiúza (arbitrator-member)

(Document drafted by computer, in accordance with Article 131, No. 5 of the Code of Civil Procedure, applicable by reference of Article 29, No. 1, paragraph e) of the Legal Framework for Tax Arbitration)