CAAD 172/2018-T: IRC on Shopping Centers - Investment Properties, Tangible Fixed Assets & Tax Benefits

ARBITRAL DECISION (please consult full version in PDF)

The arbitrators Counsel Jorge Lopes de Sousa (arbitrator-president, appointed by the other Arbitrators), Professor Doctor António Martins and Professor Doctor Henrique Fiúza, appointed by the Claimant and the Respondent, respectively, to form the Arbitral Tribunal, constituted on 10-07-2018, agree as follows:

1. Report

A...- Shopping Centre, S.A. legal entity no...., with registered office ..., ...-... ...;

B...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

C...- Shopping Centre, S.A. legal entity no..., with registered office..., ..., ...-... ...;

D...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

E...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

F...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

G...- Shopping Centre S.A. legal entity no...., with registered office..., ..., ...-... ...;

H...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

I...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

J...- Shopping Centre, S.A. legal entity no...., with registered office..., ..., ...-... ...;

K...- Shopping Centre, S.A., legal entity no...., with registered office..., ..., ...-... ...;

L..., S.A., legal entity no...., with registered office ..., ..., ...-... ...;

M...- Shopping Centre, S.A., legal entity no...., with registered office..., ..., ...-... ...;

N...- Shopping Centre, S.A., legal entity no...., with registered office..., ..., ...-... ...;

N...- Shopping Centre, S.A., legal entity no...., with registered office ..., ..., ...-... ...;

O...- Shopping Centre, S.A., legal entity no...., with registered office ..., ..., ...-... ...;

P...- Shopping Centre, S.A., legal entity no...., with registered office ..., ..., ...-... ...;

Q...- Shopping Centre, S.A., legal entity no...., with registered office ..., ..., ... -... ...;

(hereinafter jointly designated as "Claimants"), came, under the provisions of paragraph a) of article 2, no. 1 and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters - RJAT), to present a request for constitution of the arbitral tribunal immediately, concerning the express dismissal of the hierarchical appeal presented regarding the acts of self-assessment of Corporate Income Tax (IRC) for the year 2013, and mediately, concerning the legality of the said acts of self-assessment of IRC, relating to the year 2013.

The Respondent is the TAX AND CUSTOMS AUTHORITY (hereinafter "TA").

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the TA on 05-04-2018.

On 20-06-2018, the President of CAAD informed the Parties of the appointment of the Arbitrators, in accordance with the provisions of article 11, no. 7 of the RJAT.

Thus, in accordance with the provisions of article 11, no. 7 of the RJAT, the period provided for in article 13, no. 1 of the RJAT having elapsed without the Parties making any submissions, the Collective Arbitral Tribunal was constituted on 10-07-2018.

The Tax and Customs Authority presented a response in which it argued that the request for arbitral pronouncement should be judged as unfounded.

On 12-12-2018, the meeting provided for in article 18 of the RJAT was held, in which witness evidence was produced and it was decided that the proceedings would continue with optional submissions.

The Parties presented their submissions.

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal personality and capacity (articles 4 and 10, no. 2, of the same act and article 1 of Administrative Order no. 112-A/2011, of 22 March) and are properly represented.

The proceedings do not suffer from any nullities.

2. Facts

2.1. Proven Facts

The following facts are considered proven:

• The Claimants and other companies in group B... submitted on 02-08-2013 a request for Binding Information, which was issued in accordance with the terms stated in document no. 1 attached to the request for arbitral pronouncement, the contents of which are reproduced herein;

• The Claimants submitted Model 22 declarations relating to the fiscal year 2013 (document no. 13 attached to the request for arbitral pronouncement);

• The Claimants submitted, on 27-05-2016, a grace period complaint against the acts of self-assessment of IRC, relating to the IRC for 2013 (document no. 2 attached to the request for arbitral pronouncement, the contents of which are reproduced herein);

• In November 2016, the Claimants were notified of the draft decision on the grace period complaint, in the sense of its complete dismissal (document no. 3 attached to the request for arbitral pronouncement, the contents of which are reproduced herein), in which the following is referred to, among other matters:

1. In order to assess the possibility of using the said tax credit, a request for binding information was submitted by the complainant I...- Shopping Centre, SA, in accordance with article 68 of the General Tax Code (LGT), in order to obtain the TA's approval on the matter.

2. From the said request resulted the Binding Information no. 5596, of 2013/10/15, from which the following framework resulted:

"28. In subjective terms, since the Claimant exercises an activity of a commercial nature, it may benefit from the benefit. However, the doubt arises at the level of eligible investment expenses, since the investments made in the course of its activity of operating shopping centres are classified as investment properties.

1. In fact, due to the entry into force of the Accounting Standardization System (SNC), the accounting classification of shopping centres by the entities that exploit them could no longer be recognized as tangible fixed assets and had to be recognized as an investment property.

2. Now, at the level of the SNC, the accounting treatment of investment properties is established in NCRF 11 Investment Properties. This accounting standard is an adaptation of IAS 40 • Investment Properties, which also aims to prescribe the accounting treatment of investment properties.

3. As is known, the accounting and financial reporting standards constitute the central core of the SNC and are an adaptation of international accounting standards, with each one of them constituting an instrument of standardization in order to give the same technical treatment regarding the recognition and measurement of economic realities.

4. Thus, the accounting classification of shopping centres has a standardized treatment at the international level, it not being an imposition of the Portuguese legislator to classify shopping centres as investment properties.

5. We therefore have that, within the scope of NCRF 11, an investment property is a property, which may be land, a building and/or part of a building held by the owner or by a tenant to obtain rents and/or for capital appreciation.

6. However, not every property should be recognized as an investment property. There are cases in which such assets should be recognized as a tangible fixed asset and, as such, be subject to the application of NCRF 7 - Tangible Fixed Assets.

7. The qualification of land or a building as a tangible fixed asset or as an investment property therefore requires that its distinctive features be identified taking into account two factors: the purpose for which it is intended and the generation (by itself) of cash flows or what the standard identifies as the occupation of the asset by the owner.

8. In the first case, regarding the purpose for which it is intended, the standard refers to goods intended for use in production, supply of goods or for administrative purposes and, logically, are considered occupied by their owner, even if occupation is under a lease arrangement. In this case the asset would be classified as a tangible fixed asset.

9. In the case of assets held to obtain rents or for appreciation, it is considered that the asset is capable of generating, by itself, cash flows, thus being considered that the asset is not occupied by its owner. In this case we are facing an investment property.

10. Only in situations where the support services to the occupants of the property are significant for the agreement as a whole, can it be admitted that the item may be classified as property occupied by the owner and, therefore, as a tangible fixed asset.

11. In this case, the shopping centre held by the Claimant is classified as an investment property, due to the fact that it is considered that the services provided to the occupants of such properties are not significant in relation to the contract viewed as a whole. This is fundamentally a leasing activity in which, additionally, services are provided to its occupants.

12. It is established that, in the particular case of shopping centres, the assets are classified as investment properties and, as such, their accounting treatment is what is prescribed in NCRF 11. This is the reason why they cannot literally fulfill the definition of tangible fixed assets. If they literally fulfilled that definition, their accounting treatment would be done under NCRF 7.

13. The rationale for applying NCRF 11 and not NCRF 7 results from the fulfillment of certain assumptions that lead to prescribing the accounting treatment of the first and not the second. In other words, NCRF 11 does not constitute a special accounting standard of which NCRF 7 is the general standard, since there is no relationship of hierarchy or supplementary application of standards in the framework of accounting and financial reporting standards applicable.

14. For that reason, in light of the criteria provided for in the SNC, the accounting treatment of shopping centres will necessarily have to be that which is applicable to real estate held for leasing.

15. Moreover, if shopping centres were integrated into the general category of tangible fixed assets, although subject to the accounting treatment of investment property, it would be reasonable to affirm that in terms of accounting classification, investment properties could be recorded in a sub-account of account 43 - Tangible Fixed Assets. Naturally this is not the case, since, in reality, their accounting record is made in account 42 - Investment Properties, that is, in an account of the same degree as the previous one and both belonging to the class of investments, which shows that there is no relationship of hierarchy.

16. Given that the legislator only provided as eligible for purposes of the fiscal benefit, investments made in tangible fixed assets, intangible assets and non-consumable biological assets, investments made in investment properties will not be able to benefit from that regime, even in cases where, if it were within the framework of the POC, they could benefit from that regime. In fact, if the legislator had intended to include them, he would have had to do so expressly, especially since the legislation emerged already within the framework of the new Accounting Standardization System.

17. Given that the fiscal benefit contained in the CFEI does not include investments made in investment properties, the investments made by I..., cannot take advantage of the regime provided for in the CFEI."

The framework having been defined for purposes of company I..., with the TA being bound by the information provided, in accordance with article 68, no. 14 of the LGT, and given that the framework of the tax facts is equal for any of the complainants, it is understood that the investment expenses incurred do not meet the requirements of article 4 of Law no. 49/2013, for the granting of the benefit.

• The Claimants exercised the right to prior hearing in accordance with the terms stated in document no. 4 attached to the request for arbitral pronouncement, the contents of which are reproduced herein);

• The grace period complaint was dismissed in accordance with the terms stated in document no. 5 attached to the request for arbitral pronouncement, the contents of which are reproduced herein;

• The Claimants submitted a hierarchical appeal of the decision dismissing the grace period complaint, in accordance with the terms stated in document no. 6 attached to the request for arbitral pronouncement, the contents of which are reproduced herein;

• The hierarchical appeal was dismissed in accordance with the terms stated in document no. 9 attached to the request for arbitral pronouncement, the contents of which are reproduced herein, in which the following is referred to, among other matters:

1. ASSESSMENT OF THE GRACE PERIOD COMPLAINT.

(...)

In order to assess the possibility of using the Extraordinary Fiscal Credit for Investment (CFEI), the complainant "I...- Shopping Centre, S.A.", submitted to the TA a request for binding information, in accordance with article 68 of the LGT.

From this request resulted the Binding Information no. 5596, of 2013/10/15, in which it was concluded in synthetic terms that, "the investments made in the course of the activity of operating shopping centres are classified, due to the entry into force of the Accounting Standardization System (SNC), as investment properties, see NCRF 11 (...).

The legislator only provided as eligible for purposes of the fiscal benefit in question, investments made in tangible fixed assets, intangible assets and non-consumable biological assets, thus, investments made in investment properties will not be able to benefit from that regime.

In fact, if the legislator had intended to include them, he would have had to do so expressly, especially since the legislation emerged already within the framework of the new Accounting Standardization System."

The framework having been defined for purposes of company I..., with the TA being bound by the information provided, in accordance with article 68, no. 14 of the LGT, and given that the framework of the tax facts is equal for any of the complainants, it is understood that the investment expenses incurred do not meet the requirements of article 4 of Law no. 49/2013, for the granting of the benefit.

In view of the above, it is understood that the request is not well founded, and the decision to dismiss the complaint filed was therefore projected.

The taxpayer came to exercise the right to hearing for which it was notified, stating that it disagrees with the dismissal decision that fell upon its complaint, because this is based only on the understanding issued in the context of Binding Information.

It reiterates the arguments defended in the initial petition, regarding the fact that the shopping centres are allocated and constitute the very "operation" of each of the complainants and the legal and accounting framework defended, regarding the investments in question, for purposes of the granting of the CFEI.

It alleges omission of pronouncement in the Draft Decision, for not having analyzed all the questions brought to the Record.

With regard to this exercise of the right to hearing, the Services of the Finance Department state that, if they allege the same grounds defended in the initial petition, with the complainant reiterating the framework defended regarding the verification of the requirements for the inclusion of the investments in question for purposes of the granting of the CFEI, without adding any new facts.

Such allegations are also the same that form the basis of the request for binding information filed by the company "I... - Shopping Centre, SA", it being found that the question here to be settled relates only to the divergence between the complainants and the TA regarding the accounting-tax framework to be assigned to the investments in question, for purposes of the fiscal benefit under review.

Now, the TA shows itself bound by the information provided, in accordance with no. 14 of article 68 of the LGT, and with no new elements under review, the detailed assessment of the Binding Information by one of the complainants, concretely reflects the position defended by the TA regarding the tax framework of the facts.

With regard to the alleged omission of pronouncement, it does not occur since the assessment of the questions at issue shows itself to have been carried out by virtue of the position assumed by the TA resulting from Binding Information no. 5596 of 15.10.13.

1. SUMMARY OF GROUNDS INVOKED IN HIERARCHICAL APPEAL

The appellants consider that, in the binding information the TA proceeded with a purely literal interpretation of the Law, having been postponed the other elements that should be weighed and brought to the interpretive task, in total indifference to the extra-fiscal purposes of the benefit in question.

Although accounting-wise the investment expenses in any of the Shopping Centres are recorded as investment properties, they can, in substance, fulfill the definition of a tangible asset.

Indeed, the CNC sustained in response to a question (the so-called FAQ 16 published on its website) that NCRF 7 defines tangible fixed assets as items held for use in the production or supply of goods or services, for leasing to others, or for administrative purposes, this definition thus encompassing many other categories of assets, apart from land and buildings that could be leased. (emphasis of the appellant)

In view of the above, it cannot fail to be recognized that shopping centres could fall within that concept of tangible fixed assets, by being held, namely, for leasing, there being nothing in this NCRF no. 7 that suggests the contrary.

NCRF no. 11 should therefore be understood as a special regime in relation to the general and residual regime of NCRF no. 7 for leased real estate, just as, for example, the urban leasing regime is a special regime of leasing.

This understanding that investment properties are a subtype of tangible assets appears to be endorsed in the 2017 Budget Statement (Law no. 370/2016 of 13 October) - which provides, with regard to no. 10 of article 48 of the Corporate Income Tax Code (CIRC) that "investment properties are not capable of benefiting from this regime, even if recognized in accounting as a tangible fixed asset".

In NCRF 11 it is recognized that the approximation to the notion of property occupied by the owner - and, therefore, to the class of tangible assets - will be the greater, the greater the importance of the component of services provided by the lessor beyond the lease, it being admitted, for example, that a hotel may be accounted for as being "occupied by the owner", insofar as such other services are provided therein substantially.

The similarity of this situation with that of shopping centres is undeniable and has already been recognized by our superior courts (Judgment of the Superior Administrative Court (TCAS) in Case 6375/13 of 05.07.13), and by the TA itself in the field of VAT (cf. Case no. 2873).

Also in the Real Estate Tax (IMI) the "intangible" component of the shopping centre becomes evident, which is foreign to a mere investment property held passively for appreciation and/or leasing, the said Act providing in article 43 of the Real Estate Tax Code (CIMI) an enhanced coefficient (0.25) for real estate located in shopping centres.

Despite the cession of shop spaces, it cannot, in good principle, be said that shopping centres are not occupied by the owner; it is he who defines schedules, management, security, assortment of shops, it is he who occupies the areas dedicated to leisure and entertainment, and it is his responsibility to advertise the shopping centre, resulting in a significant volume of service provision.

It is further stated in Points 122 to 178 of the petition that the inaccessibility of the CFEI for the appellants is potentially generating distortions not only of the spirit of the benefit in question, but also of competition between companies operating in the same market.

In view of all the above, it thus concludes that the investments in shopping centres made by the appellants between 01.06.13 and 31.12.2013, are included within the scope of the objectives of the CFEI Law, and therefore the decision to dismiss their grace period complaint is illegal.

5. ASSESSMENT OF THE HIERARCHICAL APPEAL BY THE DSIRC.

5.1. Timeliness of the petition.

The dismissal of the grace period complaint was notified to the taxpayer on 23.12.16, through registered mail with proof of receipt (reference RF...PT).

Now, given that the present appeal petition was sent to the TA first by fax dated 19.01.17 and then on 23.01.17, the 30-day period mentioned in no. 2 of article 66 of the Code of Tax Procedure and Tax Process (CPPT) for filing this type of petition is deemed to have been met.

5.2. The matter at issue.

The situation under analysis relates to substantial investments in refurbishments made by the shopping centres owned by the taxpayers in question, and their acceptance for tax purposes under the terms of the Extraordinary Fiscal Credit for Investment (CFEI), a benefit regulated by Law no. 49/2013 of 16 July.

In the grace period complaint procedure and previously in binding information (no. 5596 of 15.10.13), it had already been made explicit by the TA that, due to the entry into force of the Accounting Standardization System (SNC), the accounting classification of shopping centres by the entities that exploit them could no longer be recognized as tangible fixed assets and had to be recognized as an investment property, see NCRF no. 11.

Nevertheless, the taxpayers now come to argue in the hierarchical appeal petition that, despite formally the expenses in question having to be recorded accounting-wise as "investment properties", the same can, in substance, fulfill the definition of a tangible asset.

It does not appear to be thus.

In fact, as previously mentioned, within the scope of the cited NCRF no. 11, an investment property is a property (building and/or part of a building) held by the owner or by a tenant to obtain rents and/or for capital appreciation.

There are cases, however, in which such assets should be recognized as a tangible fixed asset and, as such, not be subject to the application of NCRF no. 11, but rather to NCRF no. 7 relating to "Tangible Fixed Assets".

What determines whether land or a building belongs to the class of tangible fixed assets or to the class of investment properties are the intrinsic characteristics of such assets taking into account two factors: the purpose for which it is intended and the generation (by itself) of cash flows or what the standard identifies as the occupation of the asset by the owner.

In the first case (purpose for which it is intended), the standard refers to assets intended for use in production, supply of goods or services, or for administrative purposes, being thus considered occupied by their owner, even if occupation is under a lease arrangement. In this case the asset would be classified as a tangible fixed asset.

In the case of assets held to obtain rents or for appreciation, it is considered that the asset is capable of generating, by itself, cash flows, thus being considered that the asset is not occupied by its owner. In this case we are facing an investment property.

The standards cited further establish that only in situations where the support services to the occupants of the property are significant for the agreement as a whole, can it be admitted that the item may be classified as property occupied by the owner and, therefore, as a tangible fixed asset.

Now, in the specific case of shopping centres, it is evident that the services that are provided by the owner to its occupants (shopkeepers), of which we highlight Security, advertising and cleaning of access areas, are not significant in relation to the agreement (contract) as a whole.

The activity of the shopping centre consists fundamentally in a space leasing activity, in which additionally services are provided to the occupants of those spaces.

The taxpayer comes to argue in the appeal petition that its situation is similar to that of hotels, which has already been recognized by our courts, as evidenced in the Judgment of the Superior Administrative Court (TCAS) dated 05.07.13 (Case no. 6375/13), however, from careful reading of that judgment such conclusion is not reached.

Indeed, that decision establishes that the exemption from VAT payment applies only when what is at issue is a lease of "bare walls" and not in the case of active operation of real estate with a set of associated services as happens in the case of a hotel.

In that judgment, no connection is therefore established with the activity carried out by a shopping centre.

The taxpayers further state, in defense of the thesis that shopping centres are not a mere investment property held passively for leasing, that in accordance with article 43 of the Real Estate Tax Code (CIMI), a comfort coefficient of 0.25 is provided for real estate located in those spaces.

Now, while it is true that the Real Estate Tax Code, for purposes of assessment, attributes this comfort coefficient to buildings located in shopping centres, the fact is that it is not known what this represents in terms of services provided to the occupants of the shops, nor does the taxpayer quantify the values involved.

In view of the above, it is not possible to quantify the weight that the same have in relation to the agreement (contract) as a whole.

The appellants consider the interpretation given by the TA to be illegal and unconstitutional.

And they base that assertion by stating that the attribution of a benefit has to be generic, following the principle of equality, so as not to falsify or threaten to falsify competition (as provided for in article 6 of the Tax Benefits Statute (EBF) which stems from article 104 of the Constitution).

As to this, we must mention that the legislator in the wording given by Law no. 49/2013 of 17 July, only provided as eligible for purposes of the fiscal benefit of the CFEI, investments made in tangible fixed assets, intangible assets and non-consumable biological assets (see article 4 of that Law), and investments made in investment properties will not be able to benefit from that regime.

Thus, only by analogue interpretation could investment properties be considered included within the scope of the CFEI, which, in the case of a fiscal benefit, is not permitted under article 10 of the Tax Benefits Statute.

If in fact the legislator had intended to include them, he would have had to do so expressly, especially since the legislation emerged, as previously stated, already within the framework of the new Accounting Standardization System.

In view of the above, it makes no sense to now say that the TA in the interpretation given in this case proceeded in illegality and unconstitutionality, since it simply did what was stipulated in Law (application of the principle of legality provided for in articles 5 no. 2 and 8 of the LGT).

The taxpayer further states that the interpretation of the CFEI deserves further censure in light of the prohibition of illegal State aids, enshrined in article 107 of the Treaty on the Functioning of the European Union (TFEU).

Now, in this regard, we must state that it is not incumbent upon these Services to assess the existence of illegal State aids, nor is any Court of Justice of the European Union (CJEU) decision known that refers to the existence of such aids in the case at issue.

Given all the aforementioned, we conclude that there are no circumstances that in substance could lead to shopping centres being considered as tangible fixed assets and not as investment properties, thus resulting in the way of accounting provided for in the Accounting Standardization System being changed.

ADDENDUM

After this Information had been prepared, notice was taken through communication made on 22.09.17 by the Finance Department of Porto to this DSIRC that the same question here at issue was brought to the Administrative Arbitration Centre (CAAD) by the companies "S... - Shopping Centre, SA", "T...- Shopping Centre, SA", "U... - Shopping Centre, SA" and "V... - Shopping Centre, SA", companies which are part of the same economic group as the appellants herein.

The process was carried out under no. 748/2016 - T, and the decision rendered on 08.09.17 was in the sense of considering that the investments of the Claimants in shopping centres fulfill the purpose of constituting their assets dedicated to operation. It also results demonstrably that it is not by the fact that they generate rents that this excludes them from being, in substance, the assets that serve as the basis, or underlie, the normal and current operation of the respective business.

Continuing, "materially, such centres are therefore tangible assets that are used in the regular course of the business, from which derives a substantial approximation and consequent assimilation to tangible fixed assets, used in the regular production of goods or services".

It thus concludes the said Judgment that, "given the type of activity, economic-social relevance, type of investments that the claimants made and by the employment created, all in a context of great economic difficulty, it is to be concluded that we are dealing with investment assets that fit and justify the application of the CFEI".

In view of this, the appellants in the current process consider that an identical decision to the one issued by this arbitral tribunal is warranted.

In the light of these new elements brought to the proceedings, this DSIRC must pronounce itself as follows:

First and foremost, it is found that the entities involved in the CAAD case no. 748/2016 - T, although belonging to the same economic group, are not the same entities that filed the hierarchical appeal at issue.

Thus, the decision rendered within that case only applies with regard to the case judged.

However, finding that the underlying matter is actually equal to the one here under discussion, we are of the opinion that the reasons that sustained such decision should be known so as to achieve a uniformization of understanding.

In that sense, it is important to note first that the conclusion reached by that arbitral tribunal was not unanimous.

In fact, Arbitrator Judge Professor Doctor Américo Brás Carlos voted dissenting.

In the final part of said Judgment, the reasons are explained that led to his declaration of dissent.

One of these reasons has to do with the fact that the requesting entities qualified and accounted for - and continue to qualify and account for - the shopping centres as Investment Properties.

On this matter, the same judge argues that, beyond the principles of "Relevance" and "Materiality", contained in §§ 26 to 30 of the Conceptual Framework of the SNC, also the principle stated in § 35 of the same Conceptual Framework, entitled "Substance over Form", requires that the facts to be represented be "accounted for in accordance with their economic substance".

He also brings to the analysis herein the provision in § 14 of NCRF 11, which states that "Judgment is required to determine whether a property qualifies as an investment property. An entity develops criteria so that it may exercise that right consistently with the definition of investment properties and with the related guidance in §§ 7 to 13. § 77 letter c) requires that an entity disclose these criteria when the classification is difficult."

Thus, it concludes that, "It was certainly after considering, in substance, the nature of its shopping centres that the claimants and the entire economic group in which they are inserted, recognized and continue to recognize accounting-wise these as IP (see articles 75 et seq. and 99 et seq. of the initial petition)."

The same opinion is shared in this assessment.

In fact, if the entities in question considered that, materially, the shopping centres were tangible assets used in the regular course of their business, why did they continue and continue to account for such assets as investment properties.

The same procedure is verified for the appellants in the current hierarchical appeal process, as shown in the analysis to the Model 22 Declarations of 2016, see Table 05 - A (copies of this information attached for shopping centres A..., B... and C...).

In view of the above, the only reason that can be found for the appellants now defending this change of criteria, seems to have to do solely with the profit they want to make from the fiscal benefit in question.

Thus, in this case we do not agree with the conclusion reached by the majority part that decided the CAAD Judgment referenced, when it mentions that the accounting method followed is considered a "mere outer garment" or "accounting attire".

Another situation in which the position of Américo Brás Carlos is also contrary to that of his jury colleagues is regarding the greater or lesser importance of the services provided vis-à-vis the leasing of the space.

This member considers that, in the context of the contract with shopkeepers analyzed as a whole, the lease is the central object of the contract around which services are provided. The idea of connected services does not distort the lease, neither from a civil law perspective, (see article 1109 of the Civil Code) nor from a tax perspective (see ad. 8, no. 2, letters a) and b) of the Personal Income Tax Code (CIRS)). It is the leasing of the space that determines the very business impetus and truly conditions all that is agreed upon (...)"

We also share this opinion.

In fact, in the case of shopping centres, what leads the shopkeeper to lease the respective space is not the services that the owner provides, but mainly the possibility of exercising a commercial activity in a space considered to be of excellence given the high number of people who visit it.

Hence, the leases of these spaces have very high demand, often resulting in exorbitant rents.

Furthermore, as stated in the dissenting declaration of vote, "the majority of the services that the Judgment indicates as provided by the claimants to the shopkeepers are not exclusive to the owners of shopping centres, being as a rule also provided by the lessor in the expressed example of IP chosen in §11 of NCRF 11 - office buildings for lease. Whoever builds or acquires a real estate property for leasing in fractions for offices also carries out all the prospecting and adaptation work in order to ensure its future profitability, as well as carries out the maintenance, surveillance, security services of the entire building and organization and management of common areas, as well as appreciation of the real estate in order to remain commercially attractive.

The co-investment with some shops - anchor shops - referred to in the Judgment is not in the economics of NCRF 11 a service, nor does it seem to me sufficient for me to consider it significant in the whole contractualized with the shopkeepers of the shopping centres."

The dissenting declaration of vote further cites in its Point 3, other aspects in which the CAAD Judgment does not respect the provisions of Law no. 49/2013 (the act that created the Extraordinary Fiscal Credit for Investment benefit), highlighting among them the fact that it is understood that the allocation of an asset to operation or "operating asset", is a sufficient condition to benefit from the CFEI.

On this matter, Américo Brás Carlos understands that, "'assets dedicated to operation' come in various types and the legislator, not being able to fail to know all of them, granted the fiscal incentive to some and to others not."

In truth, thus it happened.

Law no. 49/2013 of 16 July, specified in no. 1 of its article 4 that, regarding assets dedicated to operation, only Tangible Fixed Assets and non-consumable Biological Assets (ABNC) could be accepted for purposes of the fiscal benefit in question, not having enumerated the IPs.

Now, in accordance with the provisions of no. 2 of article 9 of the Civil Code, "All interpretation of the Law is limited by the minimum of correspondence to its letter." Thus, any other sense than that determined in that Law constitutes an adulteration of that standard.

Even if some interpretive flexibility is invoked, as the dominant part of the Judgment in question does, it reveals itself to be entirely impossible to perform, from the outset given what is stipulated in § 2 of NCRF 7, which states "This standard shall be applied in the accounting of tangible fixed assets except when another Standard requires or permits different accounting treatment".

Now, in the case, there is another standard that requires different accounting treatment: NCRF 11 - Investment Properties.

Given all the aforementioned, and without need to address other defects that are pointed out to the decision rendered, we are of the opinion that, regarding this matter, the understanding based on the Binding Information of this DSIRC previously referenced should continue to be maintained, and on the Information that formed the basis for the decision appealed, the appeal being dismissed.

Documentary evidence of investment expenses.

Without conceding, it further appears that at no phase of the proceedings were the supporting documents of the said investments submitted, and therefore, not resulting from the tax return, the TA did not yet have the opportunity to conduct any inspection action on the amounts involved.

• The Claimants are dedicated exclusively to the operation of the shopping centres they own, and are part of Group R... (www...pt);

• The locations of the shopping centres held or operated by B... are multiple, extending from north to south of the Country, more specifically from ... (T...) to ... (A...), also covering the Madeira archipelago and the Azores archipelago;

• The activity of the Claimants does not translate into the mere leasing of spaces, of "bare walls", in commercial buildings, but comprises a set of services connected with the cession of commercial spaces, both upstream, starting with the choice of locations and design of those spaces and the definition of their respective tenant-mixes, as well as downstream, in the provision of security and architectural services and also as a financial partner; (testimony of witness W...)

• During the year 2013 and with a view to the three-year period 2014-2016, the Claimants carried out investments namely in refurbishments of existing assets and physical expansions of the shopping centres themselves, adding value to their assets, generating activity in the economy and contributing to the creation of employment; (testimony of witness W...)

• The expansion of A..., of the Group, in 2013, generated more than 100 direct jobs, in a shopping centre that already has more than 1,000 (press release, attached as document no. 10 to the request for arbitral pronouncement, the contents of which are reproduced herein);

• The Claimants made planned investments for 2013, which amounted to € 11,263,150.26, in accordance with the following table (documents no. 11 and 12 attached to the request for arbitral pronouncement, the contents of which are reproduced herein):

• The Claimants in the Model 22 declarations relating to the fiscal year 2013, did not consider the fiscal benefit of the CFEI (document no. 13 attached to the request for arbitral pronouncement);

• The Claimants have an integrated approach to the business of shopping centres, comprising a set of activities related to their development, ownership and management, with a view to providing an integrated space endowed with its own rationale that can provide innovative shopping, food and leisure experiences to its visitors; (testimony of witness W...)

• The activities developed by the Claimants preceded the very construction of the shopping centre, beginning with market studies that assess the needs of the local population regarding commercial offer (consumption habits and consumer profile), needs that determine the combination of activities and shopkeepers that the shopping centres will offer; (testimony of witness W...)

• Once the combination of activities and shopkeepers is defined, the architectural design project is initiated, which distributes those activities across the available space, taking into account the technical requirements of this type of enterprises; (testimony of witness W...)

• Once the configuration of the shopping centres is stabilized, the phase of execution of specialty projects is initiated, which is preceded by another phase of identification of competitors, launch of tender and selection of companies to contract; (testimony of witness W...)

• In parallel, the process of prospecting and negotiation with local, national and international shopkeepers is initiated, which allows the implementation of the pre-defined commercial offer; (testimony of witness W...)

• At the moment of pre-opening, marketing actions are carried out that allow proper communication with the local/regional population of the offer to be made available; (testimony of witness W...)

• In the context of this management activity, the Claimants:

i. continuously monitor the activity of their shopping centres, analyzing their main operational indicators, such as traffic and sales volume, in order to understand whether their offer constantly adapts to the needs of their visitors;

ii. prepare market studies in order to assess the level of satisfaction of customers/visitors, so that, if necessary, they can restore it to desirable levels;

iii. actively manage the tenant-mix, seeking to maintain diversity and introducing new concepts that energize the commercial offer;

iv. encourage shopkeepers to occupy spaces in the shopping centres, through co-participation in their investment;

v. prepare investment diagnoses, which allow identification of the actions necessary to ensure rational use of space and resources;

vi. identify expansion opportunities, which allow increasing the gross leasable area and introducing new concepts, activities and brands;

vii. strive to periodically renew the image of the spaces, adapting them to new trends and with the ultimate goal of increasing visitor comfort;

viii. with the objective of responding to the specific needs of consumers, develop and execute dedicated promotional actions, aiming to encourage visits by end users, increasing their involvement and confidence in the commercial space; an example of this is the recent commitment to the installation of children's parks in various shopping centres to better follow consumer trends and enhance their experience at the time of purchase (testimony of witness W...);

• It is the Claimants and not the shopkeepers who define the operating hours of the shopping centres and the opening and closing of the shops (testimony of witness W...)

• The immediate client of the Claimants is the shopkeeper, but their indirect client is the visitor to the shopping centre; (testimony of witness W...)

• The shopping centre has immediate clients that generate revenues that have nothing to do with the commercial spaces strictu sensu, namely users of leisure spaces or others and advertisers who pay to advertise in the "billboards" and other advertising spaces made available in their shopping centres; (testimony of witness W...)

• The Claimants enter into "contracts for the use of space in shopping centre", under which a mutual commitment is established between the shopkeeper and the respective owner which translates, for the former, into subjection to the commercial and management policy outlined for the shopping centre and, for the latter, often, in the assumption of the success or failure of the business of the first; (testimony of witness W...)

• These contracts include the following provisions:

• The so-called fit-out or contributions of the owner in the construction, adaptation of the shops of greater attractiveness, such as major international chains;

• The fixing of variable rents dependent on the volume of sales of the shopkeepers;

• Obligation for the projects of works carried out by shopkeepers in their shops to have prior approval by the architects of the Claimants;

• Unsusceptibility of transmission of their contractual position by the shopkeepers without prior authorization of the Claimants;

• Need for collaboration of shopkeepers in the global marketing policy outlined by the Claimants for the shopping centres (testimony of witness W...)

• The expenses with supplies and external services ("FSE") and other expenses incurred by the Claimants, in the fiscal year 2013 were those indicated in the table that follows:

(Documents nos. 29 to 36, attached on 11-12-2018, the contents of which are reproduced herein)

• The Claimants made expenses in the year 2013 with the shopping centres (document no. 12 attached to the request for arbitral pronouncement, the contents of which are reproduced herein);

• On 23-07-2018, the Claimant submitted the request for arbitral pronouncement that gave rise to the present process.

Unproven Facts and Justification for the Establishment of the Facts

There was no proof that the Claimants had their situations regularized before the Tax Administration and Social Security.

It was not proven that the value of all documents included by the Claimants in document no. 12, Parts I and II, attached to the request for arbitral pronouncement, relate to investments that meet the conditions to benefit from the CFEI and that the value of the investments corresponds to the overall value of those documents.

In fact, among those documents are included copies of invoices that are presented more than once and invoices that relate to expenses incurred outside the period of 01-06-2013 to 31-12-2013, indicated in article 3, no. 1, of the CFEI

On the other hand, as the Tax and Customs Authority states in the final part of the decision on the hierarchical appeal, "at no phase of the proceedings were the supporting documents of the said investments submitted, and therefore, not resulting from the tax return, the TA did not yet have the opportunity to conduct any inspection action on the amounts involved".

The facts were given as proven based on the documents attached by the Claimant and those contained in the administrative record and on statements by the Claimants corroborated by the testimony of witness W..., in the points indicated, which were not contradicted by any means of proof.

The witness appeared to testify with impartiality and have deep knowledge of the activity of the shopping centres in question and their relationship with the shopkeepers.

3. Legal Issue

Law no. 49/2013, of 16 July, approved the regime of the "Extraordinary Fiscal Credit for Investment" (CFEI).

Pursuant to its article 3, "the fiscal benefit to be granted to the taxpayers referred to in the preceding article corresponds to a deduction from the corporate income tax (IRC) collection in the amount of 20% of investment expenses in assets dedicated to operation, which are made between 1 June 2013 and 31 December 2013".

In no. 1 of article 4 of this act, in which the "eligible investment expenses" are indicated, it is established that "for the purposes of this regime, investment expenses in assets dedicated to operation are understood as those relating to tangible fixed assets and biological assets that are not consumable, acquired in a new state and that enter into operation or use by the end of the tax period that begins on or after 1 January 2014".

The Claimants are owners of shopping centres that were accounted for as "investment property" and not as "tangible fixed asset".

Investment expenses in assets dedicated to operation relating to investment properties are not indicated as eligible expenses in this article 4.

The Claimants argued, in a grace period complaint and in a hierarchical appeal, that the shopping centres are allocated and constitute the very "operation" of each one and should be considered legal and accounting-wise as "tangible fixed assets" for the purpose of no. 1 of article 4 of the CFEI, it not being the fact that they are accounted for as "investment property" that would prevent the investments from being covered by the CFEI.

The tax arbitration process, as an alternative means to the judicial challenge process (no. 2 of article 124 of Law no. 3-B/2010, of 28 April), is, like the latter, a procedural means of mere legality, in which it is aimed at eliminating the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [articles 2 of the RJAT and 99 and 124 of the Code of Tax Procedure and Tax Process (CPPT), applicable by virtue of the provision of article 29, no. 1, letter a), thereof], and thus the acts must be assessed as they were carried out, the tribunal not being able, when verifying the invocation of an illegal ground as support for the administrative decision, to assess whether its action could have been based on other grounds.

Therefore, it is important to clarify the grounds for the decision being challenged, which, in the case of a hierarchical appeal, is the one contained in the dismissal decision, which embodies the definitive position of the Tax and Customs Authority on the claim presented to it.

The Tax and Customs Authority, in the decision of the hierarchical appeal, in which it explains the grounds for its definitive position denying the Claimants' claim, understood, in summary, the following:

– within the scope of NCRF no. 11 "an investment property is a property (building and/or part of a building) held by the owner or by a tenant to obtain rents and/or for capital appreciation";

– "there are cases, however, in which such assets should be recognized as a tangible fixed asset and, as such, not be subject to the application of NCRF no. 11, but rather to NCRF no. 7 referring to 'Tangible Fixed Assets'";

– "what determines whether land or a building belongs to the class of tangible fixed assets or to the class of investment properties are the intrinsic characteristics of such assets taking into account two factors: the purpose for which it is intended and the generation (by itself) of cash flows or what the standard identifies as the occupation of the asset by the owner";

– "in the first case (purpose for which it is intended), the standard refers to assets intended for use in production, supply of goods or services, or for administrative purposes, being thus considered occupied by their owner, even if occupation is under a lease arrangement. In this case the asset would be classified as a tangible fixed asset";

– "in the case of assets held to obtain rents or for appreciation, it is considered that the asset is capable of generating, by itself, cash flows, thus being considered that the asset is not occupied by its owner. In this case we are facing an investment property";

– "only in situations where the support services to the occupants of the property are significant for the agreement as a whole, can it be admitted that the item may be classified as property occupied by the owner and, therefore, as a tangible fixed asset";

– "in the specific case of shopping centres, it is evident that the services that are provided by the owner to its occupants (shopkeepers), of which we highlight Security, advertising and cleaning of access areas, are not significant in relation to the agreement (contract) as a whole";

– "the activity of the shopping centre consists fundamentally in a space leasing activity, in which additionally services are provided to the occupants of those spaces";

– "the claimants qualified and accounted for - and continue to qualify and account for - the shopping centres as Investment Properties";

– "what leads the shopkeeper to lease the respective space is not the services that the owner provides, but mainly the possibility of exercising a commercial activity in a space considered to be of excellence given the high number of people who visit it";

– "whoever builds or acquires a real estate property for leasing in fractions for offices also carries out all the prospecting and adaptation work in order to ensure its future profitability, as well as carries out the maintenance, surveillance, security services of the entire building and organization and management of common areas, as well as appreciation of the real estate in order to remain commercially attractive";

– "§ 2 of NCRF 7, which states 'This standard shall be applied in the accounting of tangible fixed assets except when another Standard requires or permits different accounting treatment'. Now, in the case, there is another standard that requires different accounting treatment: NCRF 11 - Investment Properties".

– "at no phase of the proceedings were the supporting documents of the said investments submitted, and therefore, not resulting from the tax return, the TA did not yet have the opportunity to conduct any inspection action on the amounts involved".

In the present process, the Claimant concluded its submissions with conclusions in which, in essence, it says the following:

– The activity of the Claimants does not translate into the mere leasing of spaces, of "bare walls", in commercial buildings, but comprises a multifaceted set of services connected with the cession of commercial spaces, both upstream, starting with the design of those spaces and the definition of their respective tenant-mixes, as well as downstream, in the provision of continuous cleaning, security, architectural, marketing services, promotion of the shopping centre, organization of leisure spaces, events, and also as a financial partner;

– more than offering spaces to shopkeepers, shopping centres in general and those of R... in particular, offer a product to consumers, consisting of a commercial space where they can find from post offices, to citizen shops, through shops and leisure spaces, and provide events to users at different times of the year;

– The orientation of the Claimants' activity towards the visitor of the shopping centre has a particularly evident expression in the "contracts for the use of space in shopping centre", under which a mutual commitment is established (a "partnership" in the words of the witness) between the shopkeeper and the respective owner which translates, for the former, into subjection to the commercial and management policy outlined for the shopping centre and, for the latter, often, in the assumption of the success or failure of the business of the first;

– the remuneration paid by the shopkeepers to the Claimants does not correspond to the mere multiplication of the number of m2 of the commercial space by the price of the m2 in accordance with the market value by reference to the location of that space;

– the "active management" of shopping centres and the provision of services to their respective shopkeepers implies that the Claimants incur substantial expenses in contracting shared services within the Group, namely, with the holding company of Group R...;

– they are not "rents" the true complex remunerations charged to the shopkeepers which are constituted, upstream, by expenses with services that go far beyond the mere recovery of the investment plus profit margin, and, downstream, by a multifaceted set of services provided to shopkeepers that does not end in the mere cession of spaces;

– with the CFEI it was intended to provide a very strong stimulus, without any sectoral delimitation and very localized in time, intended to produce material and immediate effects;

– in the various compliance forms of tax reporting obligations (Model 22 of the IRC, IES) it is not possible for the Claimants to reveal that accounting as investment properties;

– § 6 of NCRF 7 (without regard to NCRF 11), this standard would require the classification of the Claimants' shopping centres as tangible fixed assets: (i) either because the use of the shopping centre fractions is ceded to shopkeepers, (ii) either because the corresponding cession and operation contracts carry with them a bundle of services associated with the shopping centre itself and that are ensured by the Claimants (security, architecture, cleaning, marketing, events and leisure areas to attract customers, etc.), (iii) because for some shopkeepers it can include a financial co-participation in the business, (iv) or even because the shopping centre itself should be viewed, per se, as a global product or service that is offered to shopkeepers conducive, ultimately, to the flow of customers that the shopping centre provides to those shopkeepers and generates sales within the shopping centre (which is also reflected in the charging of variable remuneration based on sales);

– no. 10 of article 48 of the Corporate Income Tax Code (CIRC) ("investment regime") is nothing more than the provision of a faculty that already fell within the competence of the TA: it is not bound by accounting and can advocate a tax treatment divergent from the accounting treatment when it is evident that the latter would determine an opposite treatment to the purpose of the IRC;

– there is no difference in what is stated in § 12 of NCRF 11 regarding hotels in relation to the activity of ownership and management (operation) of its shopping centres;

– cash flows are not attributable only to the leased assets: they are attributable to the commercial unit that is the centre as a whole and to its components beyond the fractions, namely, leisure areas, food-courts, restrooms, parking lots, security installations, common sound installation, human resources dedicated to the management of the centre as a whole, decorative elements outside the fractions, distinctive architectural elements, name, logo, the brand of the shopping centre itself, marketing policy;

– it cannot, in good principle, be said that shopping centres are not occupied by the owner: it is he who defines schedules, management, security, assortment of shops, it is he who occupies the areas dedicated to leisure and entertainment, it is his responsibility to advertise the shopping centre, organize events to attract customers, that is, it is the shopping centre owner who operates the shopping centre as a whole;

– shopping centres would only be investment properties if the volume of services provided was insignificant in relation to the agreement as a whole (§ 11, NCRF 11), which is not the case;

– the text of NCRF 11 (§§ 13 and 14) expressly refers to a concrete value judgment for the qualification of a good as an investment property;

– the legislator itself, the TA and the market recognize precisely that the activity of the Claimants does not recur to a passive activity of mere leasing of commercial spaces, but comprises a set of service provision that recurs to its activity as operation: Subjection to VAT; value for IMI purposes higher than the mere sum of the value of the shopping centre fractions;

– the interpretation of the TA violates the principle of equality, in the face of the accounting regime of micro-entities;

– the investments in question are "investments in assets dedicated to operation", for the purposes of no. 1 of article 6 of the CFEI.

The essential question to be decided is therefore, in view of the grounds for the hierarchical appeal decision, whether the Claimants' shopping centres should be considered accounting-wise as "tangible fixed assets".

If this accounting classification is appropriate, there will no longer be the obstacle that the Tax and Customs Authority in that decision understood to exist to the possibility of the Claimants benefiting from the CFEI.

In fact, the Tax and Customs Authority, in that decision, did not consider there to be an obstacle arising from the fact that shopping centres are accounted for as "investment property".

However, if the obstacle invoked by the Tax and Customs Authority does not exist, one cannot conclude, without more, that the Claimants can benefit from the CFEI as to the amounts they mentioned, since, as is stated in the final part of the grounds for the hierarchical appeal dismissal decision, "at no phase of the proceedings were the supporting documents of the said investments submitted, and therefore, not resulting from the tax return, the TA did not yet have the opportunity to conduct any inspection action on the amounts involved".

3.1. Question of the Qualification of Shopping Centres as "Investment Property (IP)

In view of the facts established, the situation at issue is essentially similar to the one assessed in the arbitration process no. 748/2016-T, with whose grounds are in agreement, and which will be followed partially in its grounds as to this point.

3.1.1. Regime of the Official Chart of Accounts (POC)

In the Official Chart of Accounts (POC), in the wording of Decree-Law no. 410/89, the following was established:

"Class 4 - Fixed Assets

This class includes assets held continuously or permanently and which are not intended to be sold or transformed in the normal course of the company's operations, whether or not owned by it or under a finance lease regime.

41 - Financial Investments:

This account integrates financial applications of a permanent character.

414 - Investments in real property:

Encompasses urban buildings and rural properties that are not allocated to the operational activity of the company.

(...)

42 – Tangible Fixed Assets:

Integrates tangible fixed assets, movable or real property, which the company uses in its operational activity, which are not intended to be sold or transformed, with a character of permanence of more than one year. It also includes improvements and major repairs that are to increase the cost of those fixed assets.

(...)

422 - Buildings and other constructions:

Relates to industrial, commercial, administrative and social buildings, including fixed installations that are their own (water, electricity, heating, etc.).

It also refers to other constructions, such as walls, silos, parks, reservoirs, canals, roads and streets, internal railways, runway, wharves and docks.

423 - Basic Equipment:

This is the set of instruments, machines, installations and other assets, with the exception of those indicated in account 425 "Fixed Assets - Tools and Utensils", with which extraction, transformation and preparation of products or the provision of services is carried out.

As can be seen from the underlined points, in this class 4 of the POC, concerning long-term assets, a distinction was made between "real property" which was defined as "urban buildings and rural properties that are not allocated to the operational activity of the company" and "buildings and other constructions" which were tangible fixed assets, allocated to operational activity.

Buildings allocated to operation did not integrate the concept of real property in the accounting sense, being instead referred to as "buildings and other constructions", being an integral part of the tangible fixed assets, which included long-term assets allocated to the current or operational activity of entities.

Thus, they were distinguished, in account 41.4, the non-operational assets and substantially equivalent to what is today designated as IP.

3.1.2. The Emergence of the Concept of Investment Properties

"In a logic of separating, in the balance sheet, land and buildings that would be acquired for extra-operation purposes, i.e., as a passive application of funds, and not to be managed in the context of the operational or current activity of companies, let us begin by analyzing what the Statement of Standard Accounting Practice (SSAP) No. 19., entitled "Accounting for investment properties", issued in 1981 (the POC, created in 1977, was taking the first steps), by the Institute of Chartered Accountants of England and Wales, states about such concept.

Indeed, on p. 4- Explanatory note, the following characteristics are attributed to IP:

"A different treatment is, however, required when a significant proportion of the fixed assets of an enterprise is held nor for consumption in the business operations but as investments, the disposal of which would not materially affect any manufacturing or treading operations of the enterprise."

That is, and translating freely, these are assets not used in the operations or current businesses of the company and whose "disposal does not affect the production or trading operations of the alienating entity". They are in short, in their genesis, equated to portfolio investments, which are held for income-generating or speculative purposes.

In commentary on such concept, G. Holmes and A. Sugden write, "Interpreting company reports & accounts", London, Prentice Hall, 1999, p.60 that "Under SSAP 19- 'Investment properties' (i.e., properties held as disposable investments rather than for use in a manufacturing or commercial process…), emphasizing the general feature of IP, which is its non-allocation to an industrial or commercial activity, and instead constituting disposable investments at any time because acquired for purposes other than operational activity.

For its part, the International Accounting Standard (IAS) 40, created in 2000, which NCRF 11- "Investment Properties" is inspired by, defines:

"Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:

(a) use in the production or supply of goods or services or for administrative purposes;

or (b) sale in the ordinary course of business."

Finally, NCRF 11 - Investment Properties, provides that:

Investment property: is the property (land or a building — or part of a building — or both) held (by the owner or by the tenant in a finance lease) to obtain rents or for capital appreciation or for both purposes, and not for:

(a) Use in production or supply of goods or services or for administrative purposes;

Or

(b) Sale in the ordinary course of business.

From the normative framework exposed, it is clear that the accounting standards, among which the SNC, wished to distinguish certain assets (real property and land) which are not related to the operational activity of entities - rather configuring goods which can be disposed of without affecting the operation of the holding companies - from those assets of the same kind which, being recognized in the assets, have an objective linked to operation and are integrated into operational activity.

This distinction will, as a rule, have an economic correspondence underlying it. For example, if a shoe factory acquires land with a view to its appreciation and sale, such land is not an asset dedicated to operation. If that same factory acquires an office building for lease to professionals, such asset will also not be an asset dedicated to normal activity (which is the production and sale of shoes). These are, in both examples, what is designated as assets generating income obtained passively, by "rentier" investors, and not by their operational or active operation use.

The situation is more complex when the normal or operational activity of an entity is constituted by the leasing of commercial spaces and the provision of connected services with a character of relevance or significance in the context of the business. In view of the factuality given as proven, the operational activity of the Claimants points, precisely, to their classification in this situation, as we will now demonstrate.

3.1.3. Classification, on the material and accounting plane, of the assets and investments in question

The essential question for accounting classification is "whether the assets and investments of the Claimants are goods or rights allocated to a lateral or secondary purpose in relation to its activity, having a rentier or speculative nature, or whether, on the contrary, supporting its operational activity, are actively managed and constitute its regular and continuous source of income and cash flows".

"On the date of the facts, the SNC, in its respective NCRF 7 - 'Tangible Fixed Assets' provided that: 'Tangible fixed assets: are tangible items that:

(a) Are held for use in production or supply of goods or services, for lease to others, or for administrative purposes; and

(b) Are expected to be used for more than one period.'

A tangible fixed asset is distinguished by its use in the production or operation of goods and services in the course of the current or operational operations of an entity. Starting from this concept, it is verified that, in the case at issue, the investments made by the Claimants in shopping centres fulfill the essential requirement of constituting means allocated to operation".

It results from the established facts that the activity of the Claimants begins "before the construction of shopping centres, through the carrying out of market studies so that the location and clientele are adjusted to the shopkeepers and customers that will come to use the spaces.

"The construction of the centre is done with a view to maximizing income, translating architectural choices that are not typical of investment properties that only aim at leasing of the "bare walls" type in spaces with a standard configuration and, as a rule, without specific adaptation to the business needs of the occupants.

The choice of occupants of the shops, in the case at issue, is made selectively, and there may even be co-investment, in anchor shops, configuring a policy according to which the dynamic, and not passive, operation of the centres constitutes the regular or operational activity of the Claimants.

(...)

On the other hand, the activity developed by the Claimants, regarding the management of shopping centres, is active in character, not being limited to the mere cession of spaces for commercial operation by third parties".

In fact, as it results from the established facts, the Claimants:

i. continuously monitor the activity of their shopping centres, analyzing their main operational indicators, such as traffic and sales volume, in order to understand whether their offer constantly adapts to the needs of their visitors;

ii. prepare market studies in order to assess the level of satisfaction of customers/visitors, so that, if necessary, they can restore it to desirable levels;

iii. actively manage the tenant-mix, seeking to maintain diversity and introducing new concepts that energize the commercial offer;

iv. encourage shopkeepers to occupy spaces in the shopping centres, through co-participation in their investment;

v. prepare investment diagnoses, which allow identification of the actions necessary to ensure rational use of space and resources;

vi. identify expansion opportunities, which allow increasing the gross leasable area and introducing new concepts, activities and brands;

vii. strive to periodically renew the image of the spaces, adapting them to new trends and with the ultimate goal of increasing visitor comfort;

viii. with the objective of responding to the specific needs of consumers, develop and execute dedicated promotional actions, aiming to encourage visits by end users, increasing their involvement and confidence in the commercial space; an example of this is the recent commitment to the installation of children's parks in various shopping centres to better follow consumer trends and enhance their experience at the time of purchase

On the other hand, the fixing of variable rents, dependent on the volume of sales of the shopkeepers, the obligation for the projects of works carried out by shopkeepers in their shops to have prior approval by the architects of the Claimants and the need for collaboration of shopkeepers in the global marketing policy outlined by the Claimants for the shopping centres, show that the Claimants are not detached from the business of the shopkeepers, even expecting passively the rent or the increase in the price of the space to dispose of the real property. On the contrary, there is even, in certain cases, a logic of risk-sharing, in which the Claimants assume the success or failure of the shopkeepers' businesses.

Thus, one is far from the technical-economic characteristics referred to above and attributed to the concept designated as Investment Properties.

In fact, "investment property" is defined in NCRF 11 as "the property (land or a building, or part of a building, or both) held (by the owner or by the tenant in a finance