Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
The arbitrators appointed to form the Collective Arbitral Tribunal, constituted on 23 July 2018, Dr. Alexandra Coelho Martins (chair), Prof. Dr. António Martins (appointed by A... SGPS, S.A.) and Prof. Dr. Henrique Fiúza (appointed by the Tax and Customs Authority), agree as follows:
I. REPORT
A... SGPS, S.A., hereinafter referred to as the "Claimant", a legal entity and taxpayer number ..., with registered office at ..., ..., ..., ...-... ..., filed a request for the constitution of a Collective Arbitral Tribunal and for an arbitral decision, pursuant to article 2, no. 1, paragraph a) of the Legal Framework for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, and articles 1, paragraph a) and 2 of Order no. 112-A/2011, of 22 March, concerning assessments for Corporate Income Tax ("IRC") – no. 2017..., of 14 December 2017 – and compensatory interest – no. 2017... –, relating to the fiscal year 2014, which, according to the respective Statement of Adjustment of Accounts, resulted in a global amount payable of € 182,248.27.
The Respondent is the Tax and Customs Authority ("AT").
The Claimant seeks a declaration of illegality and consequent annulment of the contested tax acts, as well as restitution of amounts wrongfully paid, together with compensatory interest, pursuant to article 43, no. 4 of the General Tax Law ("LGT").
The Claimant opted to appoint an Arbitrator and designated, for that purpose, Prof. Dr. António Martins, pursuant to the provisions of articles 6, no. 2, paragraph b) and 11, no. 2, paragraph b) of the RJAT.
The request for constitution of the Arbitral Tribunal was accepted by the President of the Centre for Administrative Arbitration ("CAAD") and followed its normal procedure, with automatic notification to the AT, on 27 April 2018.
In accordance with the provisions of articles 5, no. 3, paragraph b), 6, no. 2, paragraph b) and 11, no. 3, all of the RJAT, the senior manager of the Tax Administration service designated as Arbitrator Prof. Dr. Henrique Fiúza.
By order of the President of the Deontological Council of the CAAD, of 2 July 2018, following a request submitted for that purpose by the arbitrators appointed by the parties, Dr. Alexandra Martins was appointed as Arbitrator Chair. Pursuant to the terms and for the purposes of article 11, no. 7 of the RJAT, the President of the CAAD informed the parties of this appointment on 3 July 2018.
The parties did not object, in accordance with the combined provisions of articles 11, no. 1, paragraph c) and 8 of the RJAT and 6 and 7 of the CAAD Code of Ethics.
The Collective Arbitral Tribunal was constituted on 23 July 2018, as communicated by the President of the Deontological Council of the CAAD.
POSITION OF THE CLAIMANT
As the grounds for its request, the Claimant alleges substantive and formal defects. Regarding the former, it begins by invoking errors in the factual and legal assumptions, specifically, the absence of the taxable fact and the inadmissibility of applying the transfer pricing regime, which is regulated in article 63 of the IRC Code and Order no. 1446-C/2001, of 21 December.
It considers, for this purpose, that there is no linked operation, as there was no transfer or business transfer focused on the transmission of intangible assets (such as the "customer portfolio" and know-how) from B..., LDA. ("B...") to C..., LDA. ("C..."). What occurred was merely the termination of the distribution and commercialisation contracts that the manufacturing units had concluded with B... and the change of service provider for commercialisation, which became C... (partially held by one of the Group's companies), as part of a management decision, which in the Claimant's view is not subject to review by the AT, aimed at reducing costs and structures.
For the Claimant, the know-how and clientele used, both by B... and subsequently by C..., were already the exclusive property of the Group, and could not even be the subject of transfer, since B... could not transfer what did not belong to it. Moreover, the distribution contracts concluded by the manufacturing units with B... provided for the renunciation by the parties to the payment of any compensation arising from their eventual termination, in accordance with contractual freedom.
In any case, no compensation would ever be owed to B... for contractual breach, since it brought no added value – customer acquisition – to the manufacturing units.
The Claimant adds that the issuance of value judgements by the AT regarding the justification for the change in the commercialising entity constitutes a legally inadmissible interference in the Group's management decisions, taking into account the principle of freedom of private initiative provided for in article 61 of the Constitution ("CRP"). Given that the AT, on which rests the burden of proof in accordance with article 74 of the General Tax Law ("LGT"), has not alleged and proved facts demonstrating the inadequacy or lack of justification for the change of commercialiser, the correction is illegal by violation of articles 61 and 104, no. 2 of the CRP and 74 of the LGT.
The Claimant also raises the formal defect of lack of reasoning regarding the methodology used for the quantification of the taxable fact and determination of the tax. It asserts that the Tax Inspection Report ("RIT") refers to the Comparable Market Price Method ("CMPM"), however, the Services ultimately did not use such method and did not identify a comparable operation. The Report's elements do not permit ascertaining the formulas, calculations and, above all, the logic and cognitive path of the method employed by the AT: what is the comparable operation and the comparable price that served as the basis for the correction. In this manner, the contested tax acts violate the duty to provide reasoning set forth in article 268, no. 3 of the CRP, article 153 of the Code of Administrative Procedure ("CPA"), article 77 of the LGT and article 36 of the Code of Tax Procedure and Process ("CPPT").
Finally, the Claimant invokes errors in the assumptions regarding the quantification of the taxable fact and the tax and concludes that the tax acts in question are illegal, petitioning their annulment with the legal consequences. It attached 6 (six) documents and requested witness testimony.
POSITION OF THE RESPONDENT
On 1 October 2018, the Respondent submitted its reply, in which it raised an incident concerning verification of the value of the case, in view of the fact that the tax act implies two corrections, one for transfer pricing and another for (wrongful) deduction of tax benefits ("CFEI"), and only one of them, relating to transfer pricing, has been contested in this arbitral action. It thus considers that the value of the case should be reduced by € 89,715.76, relating to the correction of tax benefits, and that the request is for (only) partial annulment of the assessment.
On the merits, the Respondent specifically contested the Claimant's arguments, concluding that the action is unfounded and requesting the dismissal of all claims. In its view, B... progressively transferred to C..., over a period of two years, the activity of commercialising steel products, having been emptied of its functional content, without receiving any compensation. In this context, B... ceased to carry out sales and, conversely, the sales carried out by C... in the year 2014 and subsequent years resulted from orders from customers that formed part of B...'s customer portfolio and from the use of know-how held by employees who had transferred from the latter to C....
The entities involved are all affiliates of the Claimant, such that special relationships exist within the meaning of article 63, no. 4, paragraph b) of the IRC Code, and the operations in question must comply with the arm's length principle.
The AT argues that, taking as a paradigm the carrying out of the same operation between independent entities, even acting as a limited risk distributor, B... should have obtained compensation, both for the investments made, for lost profits, and for the transfer of know-how and customer portfolio.
It further notes that the Claimant failed to comply with the obligations set forth in article 63, no. 6 of the IRC Code and articles 13 and 14 of Order no. 1446-C/2001, by not having classified the operation as a linked operation, nor having included it in the Transfer Pricing Documentation. Since the Claimant did not frame the operations within the discipline of article 63 of the IRC Code, the inspection services proceeded to select the method that best estimates the compensation that, under normal market conditions, would be owed to B..., taking into account the analysis of the activities carried out by B... and C... and the contracts concluded.
In this regard, the Respondent considers that the Comparable Market Price Method is the most appropriate, given the provisions of article 4, nos. 1 and 2 of the aforementioned Order, as it is the one that ensures the highest degree of comparability between linked operations and those carried out between independent parties.
Additionally, it argues that the AT did not interfere in the Group's management decisions, as what is at issue is not corporate practice, but merely the exercise of the legal competence to verify the correct classification of operations that affect the taxable income of the Group which, without prejudice to the application of the special regime for taxation of groups of companies ("RETGS"), takes into account the identification of results corresponding to each entity.
It considers, on the other hand, that the case law regarding the disallowance of costs under article 23 of the IRC Code is inapplicable, as the adjustments in question were made under another provision, article 63.
As to the principle of freedom of private initiative enshrined in article 61 of the CRP, the Respondent states that this is not part of rights, freedoms and guarantees, and thus is not an absolute principle, and even if it were, it could still be subject to restrictions for the safeguard of other rights and interests constitutionally protected, pursuant to article 18, nos. 1 and 2 of the CRP and Constitutional Court Decision no. 197/2016, of 23 May.
It likewise rejects the defect of lack of reasoning, emphasizing that the Claimant's arguments reveal that the latter had no difficulty in understanding the reasons that led to the adoption of the act.
Regarding the quantification of the taxable fact, the Respondent argues that it was done in accordance with the OECD Guidelines, according to which "the profits that would have been realised by the company, which due to the conditions applied or imposed did not occur, must be determined and, as such, included in its taxable results subject to payment of tax", and corresponds to the annual remuneration of the sales that B... ceased to obtain from its base of loyal customers. It states that, for this purpose, the inspection services:
(a) Quantified the sales carried out in 2014 by C... with B...'s customers, which represent 99.519% of the sales volume;
(b) Determined the operating profits that B... would have obtained if it had not transferred its customer portfolio to C..., which correspond to the margin of 0.75% agreed with the manufacturing companies, reduced by costs; and
(c) Calculated the potential operating margin of B....
The Respondent also comments on the study commissioned by the Claimant, regarding which it highlights that it was based on a different qualification of the facts and different assumptions, such that the results obtained are not comparable. It concludes for the validity of the assessment, understanding that no compensatory interest is owed, as no error attributable to the services was found. It did not request the production of evidence and subsequently attached the administrative file ("PA") on 9 October 2018.
The Tribunal determined, by order of 11 October 2018, that the meeting provided for in article 18 of the RJAT be held, with questioning of the witnesses indicated by the Claimant, which took place on 5 December 2018. Four witnesses were heard. Regarding the preliminary issue raised by the Respondent, the Claimant stated that it would present its arguments at the submissions phase.
The parties were notified for successive written submissions and the time limit for delivering the decision was extended by two months, pursuant to article 21, no. 2 of the RJAT. Finally, the Claimant was advised that, by the end of the deadline, it should proceed with payment of the subsequent arbitration fee, in accordance with the provisions of article 4, no. 3 of the Regulations on Costs in Tax Arbitration Proceedings and communicate this payment to the CAAD.
The Claimant and Respondent submitted arguments maintaining, in essence, the arguments contained in the request for arbitral decision and the reply, respectively.
Regarding the preliminary issue raised by the AT concerning the value of the claim, the Claimant states that this was an oversight on its part, with the economic value of the case corresponding to € 92,532.51, resulting from the deduction of the amount of € 89,715.76 (relating to the CFEI tax benefit, which it contested separately and which is not part of the subject-matter of the arbitral action) from the (wrongly) indicated value in the request for arbitral decision of € 182,248.27.
II. SANATION
The Tribunal was regularly constituted and is competent ratione materiae, taking into account the nature of the object of the proceedings (cf. articles 2, no. 1, paragraph a) and 5 of the RJAT).
The request for arbitral decision is timely, as it was presented within the time limit set forth in article 10, no. 1, paragraph a) of the RJAT.
The parties have legal personality and capacity, have standing and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities, and no preliminary issues have been raised, apart from the incident concerning verification of the value of the case, raised by the Respondent, which will be considered and decided immediately after the determination of the facts.
III. GROUNDS
1. FACTS
Relevant to the decision, the following facts should be considered as proved:
A. A... SGPS, S.A., here the Claimant, is a company whose purpose is the management of equity interests and which heads, as the dominant company, the Group A..., which in the year 2014, namely for purposes of IRC taxation under the RETGS, consisted, in addition to the Claimant itself, of the following companies, all held 100%:
i. D..., S.A. ("D...");
ii. E..., S.A. ("E...");
iii. F..., S.A. ("F...");
iv. G..., S.A. ("G...");
v. H..., S.A. ("H...");
vi. I..., S.A. ("I...");
vii. B..., LDA. ("B...");
viii. J..., UNIPESSOAL, LDA. ("J..."),
– cf. organisational chart (figure 1) contained in the Tax Inspection Report ("RIT") contained in the PA and Document 2 attached with the request for arbitral decision (ppa).
B. The Group A... resulted from a corporate restructuring that occurred in the year 2005. In that year, D..., a company holding two industrial units (one located in ... and another in ...) and arising from the privatisation of Steel, proceeded to the separation and transfer of all assets assigned to those industrial units to the legal sphere of two other companies, then established, whose capital is entirely held by D...: G... and H... – cf. Document 4 attached with the ppa and testimony of witnesses.
C. G..., H... and I... are the manufacturing companies of steel products of Group A... in Portugal – cf. RIT and testimony of witnesses.
D. In 2008 and 2009, two groups coexisted for purposes of the tax regime for taxation of groups of companies. One composed of D..., G..., H... and I..., another composed of the Claimant (A... SGPS, S.A.), B... and J... – cf. Document 3 attached with the ppa and testimony of witnesses.
E. In 2014, the Claimant still held equity interests in K..., S.A. ("K...") and in C..., LDA. ("C..."), the latter held directly in 38.98% – cf. table 1 contained in the RIT.
F. The Claimant carries out its activity within the scope of the Spanish Group L... (current designation), referred to as the main Group of Iberian dimension operating in the steel sector, which includes companies resident in Portugal and Spain – cf. RIT and testimony of witnesses.
G. From the L.../A... Group, in which the Claimant is part, there are entities with distinct nature and function, which contribute and participate in the various stages of the production process, whether in terms of manufacturing and processing of raw materials or its subsequent commercialisation to customers outside and within the Group itself – cf. RIT and testimony of witnesses.
H. With regard to the commercialisation of products manufactured within the Group (wire, bar and mesh), this was initially carried out, up to approximately the year 2005, by D... itself, which, over time, acquired a significant number of customers, loyal to the type and quality of the product manufactured by the Group – cf. testimony of witnesses.
I. In 2005, with the transfer of the activity of the two industrial units to the sphere of G... and H..., the commercialisation of the products manufactured came to be carried out by B..., based on the know-how and customers previously acquired by the Group – cf. testimony of witnesses.
J. The activity subsequently carried out by B... essentially included the conclusion of distribution contracts with the productive entities of the Group, G..., H... and I..., from which it acquired products for subsequent resale to entities outside the Group – cf. RIT and testimony of witnesses.
K. In accordance with these contracts, which were identical regardless of the productive entity with which they were concluded, B... ensured the distribution, in Portuguese territory, of the products manufactured by G..., H... and I... to external clients of the L.../A... Group – cf. RIT (whose annex 1 contains a copy of the distribution contracts).
L. Additionally, within the scope of the aforementioned distribution contracts, B... undertook to increase the sales volume of the products in question, to organize transport logistics and customs management, to resolve issues of non-conformity in the commercialisation of goods (when attributable to it) and assumed the risk of non-payment by end customers – cf. RIT (whose annex 1 contains a copy of the distribution contracts).
M. As counterpart/remuneration for its commercialisation activity, B... received from the factories (G..., H... and I...) a commission of 0.75% on the amount of sales realised, a contractualised percentage that remained stable in the period between 2010 and 2015 – cf. RIT and testimony of witnesses.
N. The distribution contracts concluded provided for the renunciation by the parties to the receipt of any compensation arising from the eventual termination thereof – cf. RIT (whose annex 1 contains a copy of the distribution contracts).
O. These contracts further provided, in their tenth clause, that: "[i]n the event of a change of control in any of the Parties through merger, public takeover bid launched for the respective equity capital, spin-off, transformation, substantial sale of assets or any other form of corporate reorganisation such that such control comes to be exercised by an entity not belonging to the B... Group, the contract shall cease to have effect immediately" – cf. RIT (whose annexes 1 and 3 contain copies of the distribution contracts with B... and with C...).
P. In the development of this activity, B... followed the guidance provided to it by the L.../A... Group, since external customers were already loyal to the Group's products – cf. testimony of witnesses.
Q. The policy for setting the sale "price" was the exclusive responsibility of the L.../A... Group – cf. testimony of witnesses.
R. A substantial part of the invoicing obtained by B... until the year 2013 concerned entities to whom the L.../A... Group had previously billed, namely through D... until the year 2005 – cf. testimony of witnesses.
S. In August 2013, the activity of commercialising steel products (in bar form) of the L.../A... Group in Portugal came to be carried out by another company, C..., following the termination, by G..., H... and I..., of the distribution contracts concluded with B... – cf. RIT and testimony of witnesses.
T. It was not a total immediate rupture, as B... still remained for some time with the commercialisation of "Rolled Wire" products (until May 2014) and was responsible for the management and sale of products to customers with bank guarantees provided in its favour [B...], until the gradual issuance of new guarantees for the benefit of C... – cf. testimony of witnesses.
U. Until May 2013, C... was partially held by the M... Group, as part of a partnership established regarding the commercialisation of a product not manufactured by the L.../A... Group. Following the economic crisis and the partner's disinvestment, in 2013 the L.../A... Group succeeded in acquiring the remaining interest in C... which came to be entirely held by it – cf. testimony of witnesses and organisational chart (figure 1) contained in the RIT.
V. The reason for the change in commercialising entity was related to the intention of the L.../A... Group to restructure its commercialising activity in Portugal, with the use of C... being made viable for that purpose, from the moment it became fully integrated into the scope of the L.../A... Group, following the purchase of the interest belonging to the M... Group – cf. testimony of witnesses.
W. On the other hand, C... had its own land and warehouses, as well as better rail and road access, which represented the possibility of the commercialising activity, which involves the storage and transport of products, being carried out in a more adequate and effective manner. The Group also intended to concentrate this activity in a single entity, avoiding cost redundancy – cf. testimony of witnesses.
X. The contract concluded between the new commercialiser (C...) and G... and H... has exactly the same conditions that had been agreed with B..., namely as regards the sales commission of 0.75% – cf. RIT (whose annex 3 contains a copy of the distribution contract concluded by C...).
Y. C..., like its predecessors D... and B..., also benefited from the know-how and customers loyal to the L.../A... Group – cf. testimony of witnesses.
Z. The circular communication letter informing customers of the contractual change and the new commercialising entity (C...) was sent by Mr N... who signed it as follows:
"N.../B...
Commercial Director
Portugal and Spain",
with the designation "B..." being used as a trade name within the Group for various purposes, namely as a "brand" of products and as the designation of companies, also in Spain – cf. testimony of witnesses, organisational chart of the Group contained in the RIT and annex 4 of the RIT.
AA. Some of the workers of B... who performed functions related to the commercialisation of products transferred to the sphere of C... for the development of its activity – cf. testimony of witnesses.
BB. The Claimant was subject to an inspection procedure carried out by the Tax Inspection Services of the Large Taxpayers Unit of the AT, in compliance with Internal Order no. OI2017..., with the objective of verifying compliance with tax obligations, in respect of IRC, for the year 2014 – cf. RIT.
CC. This inspection action was based on Internal Order no. OI2016..., referring to the inspection procedure carried out, with reference to IRC for the same year (2014), to the company "B..., LDA.", whose Tax Inspection Report forms an integral part of the Report of the Claimant – cf. RIT.
DD. As a result of this inspection action, the Claimant was notified of the draft Tax Inspection Report, to exercise the right of hearing on the proposed corrections:
i. Correction to the taxable income declared by the Claimant, in the amount of € 332,148.42, arising from the alleged transfer of business between related entities, under article 63 of the IRC Code;
ii. Correction to IRC, in the value of € 89,715.76, relating to the non-acceptance of the deduction of the CFEI tax benefit, which is not the subject-matter of this arbitral action,
with the Claimant opting not to do so, reserving its right of defence for the judicial phase – cf. RIT, section IX.
EE. The AT maintained the proposed corrections, proceeding with the notification of the final Tax Inspection Report, on which an order was made by the Head of Division (in replacement capacity), the contents of which are given in full reproduction, from which the following reasoning is extracted, relevant to the matter under discussion in these arbitral proceedings – cf. RIT (document 2 attached with the ppa and with the PA):
"I.4.1. CORRECTIONS AT THE LEVEL OF TAXABLE INCOME – IRC
I.4. Brief description of the conclusions of the inspection action
I.4.1. IRC – Corrections to taxable profit
I.4.1.1. Transfer of business to a related entity (article 63 of the IRC Code) – € 332,148.42
Following the analysis performed, it was found that the taxpayer progressively transferred, over a period of two years, the activity of commercialising steel products to a related entity – the company C... – without having been compensated for the cessation of its business and the transmission of the base of loyal customers. In addition to having benefited from the transfer of the business, the performance of this new function by C... made it possible to partially deduct accumulated tax losses from preceding periods, in the course of the prior business it was developing. As a result of this operation – transfer of the business – the company B... renounced a margin equivalent to 0.75% of the sales it ceased to realise and which came to be recorded by C.... Given that the absence of remuneration in the operation carried out violated the Arm's Length Principle, advocated in no. 1 of article 63 of the Corporate Income Tax Code (IRC Code), it was concluded that the taxpayer undervalued its taxable profit by the amount of € 332,148.42
[...]
III. DESCRIPTION OF THE FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS
III.1. IRC – Corrections to taxable profit
III.1.1. Transfer of business to a related entity (article 63 of the IRC Code) – € 332,148.42
In the course of the inspection procedure for the period of 2014, it was detected that B... Lda (hereinafter referred to simply as "B..." or "taxpayer") showed a sharp reduction in its activity, evidenced by the decrease in the item "Sales and services rendered", which fell from 210.4 million Euros in 2012 to 124.2 million Euros in 2013 (reduction of 41.0%) and to 33.7 million Euros in 2014 (less 72.9%). In the period 2015, the company recorded a nil value of "Sales and services rendered".
In parallel, the company C... Lda (hereinafter "C...") showed sharp growth in the item "Sales and services rendered" in the same time interval, specifically, 50.7 million Euros in 2013 (increase of 2,551.2%), 142.3 million Euros in 2014 (plus 180.5%) and 165.6 million Euros in 2015 (variation of 16.3%), having replaced B... in the performance of the commercial function with existing customers.
The symmetrical evolution of the sales of the two companies was justified in point 4 "Evolution of Economic and Financial Performance" of the Transfer Pricing Documentation (hereinafter "DPT") of B... for 2014 (page 7) where it stated that "the sharp decrease in the volume of business in 2014 results from the fact that almost all of the commercialisation activity of steel products (...) was transferred in the course of said fiscal year to a commercialiser partially held by Group A...".
Considering the existence of special relationships between the taxpayer and C..., the transfer of the business in question and the use of the customer portfolio by C... constitutes a linked operation, which is subject to compliance with the Arm's Length Principle, enshrined in the Portuguese legal system in no. 1 of the current article 63 of the IRC Code1. In this context, and taking into consideration the OECD Guidelines2 on transfer pricing, the linked operation in question was assessed, with a view to determining compliance with the aforementioned Arm's Length Principle in the terms and conditions practised in said transaction. Following this assessment, it was concluded that there was a violation of this principle, which resulted in a reduction of the taxable profit of B... in the period analysed, as follows.
1 It should be added that in point 3 of article 1 of Order no. 1446-C/2001 of 21 December, which complements the regulation of the matter of transfer pricing, there are specifically references to "commercial operations carried out in the context of a change in business structures".
2 See "OECD – Principles Applicable to Transfer Pricing for Multinational Enterprises and Tax Administrations" of 1995, published in Cadernos de Ciência e Técnica Fiscal (189) – Ministry of Finance – Lisbon 2002. The guidelines contained in the 1995 Report have since undergone a series of revisions, giving rise to the "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations" of July 2017, published by the OECD itself and not yet translated in Portugal, such that all future references to the "Guidelines" or "OECD Orientations" respect this latter version.
It should be noted that, in accordance with no. 3 of article 77 of the General Tax Law (LGT), "in the case of the existence of operations or series of operations on goods, rights or services, or of financial operations, carried out between a taxpayer on income and any other entity, subject or not to income tax, with which the latter is in a situation of special relationships, and whenever there is non-compliance with any obligation established by law for such a situation, the reasoning for the determination of taxable income corrected for the effects of special relationships must comply with (...)" certain requirements, namely, the description of special relationships, the indication of obligations not complied with by the taxpayer, the application of the methods provided for by law and the quantification of their respective effects. Pursuant to the aforementioned terms, the grounds for the proposed correction will hereinafter be presented.
III.1.1.1. Description of special relationships
In the context of what is referred to in paragraph a) of no. 3 of article 77 of the LGT, it is important to demonstrate the existence of special relationships between B... and C....
No. 4 of article 63 of the IRC Code explicitly sets out the circumstances in which special relationships are deemed to exist between two entities, such fact occurring in situations where one entity has the power to exercise, directly or indirectly, a significant influence in the management decisions of the other, which is deemed to be verified, in particular, between two entities in which the same shareholders hold, in each of them, a direct or indirect participation of not less than 20% of the capital or voting rights (paragraph b) of no. 4 of article 63 of the IRC Code).
As indicated in point 2 "Shareholder Structure" and in the organisational chart of the Spanish group L..., integrated in the DPT3 of the taxpayer, the company B... was held at 100% by A... SGPS, SA (hereinafter "A...") and this company also held 38.98% of the company C..., all having their registered offices in Portugal, in 2014.
3 Page 4 of DPT of company B..., 2014.
In the same year, the remaining capital of C... (61.02%) was held by LAF 2000, with registered office in Spain, which at the same time belonged to a subsidiary of the dominant company of the L... group, located in the same country.
The corporate structure of the L... group, which encompasses A..., is represented in figure 1 below.
Figure 1 – Organisational chart of the L... group
[Chart structure as referenced in original]
The shareholdings of company A... were also identified in the IES of 2014, as detailed in the following table.
Table 1 – Shareholdings of company A... SGPS SA, 2014
Tax ID | Designation | Interest (%) | Date of start of shareholding
... | D... SA | 100.00 | 25-04-1994
... | B... LDA | 100.00 | 22-04-1996
... | E... SA | 100.00 | 30-06-2011
... | C... LDA | 38.98 | 30-05-2013
... | E... SA | 100.00 | 16-06-2014
... | J... UNIPESSOAL LDA | 100.00 | 13-12-2006
... | K... SA | 100.00 | 10-10-2002
Source: IES of company A..., SGPS, SA, 2014 (Declaration IES-DA .../2014/...)
Considering the capital distribution structure of A... SGPS SA described above, it was concluded that the taxpayer was in a situation of special relationships with company C.... The special relationships were verified by virtue of paragraph b) of no. 4 of article 63 of the IRC Code, since both the taxpayer and C... are directly held by the same entity (company A...) in percentages not less than 20%.
This means that the aforementioned operation constitutes a linked operation, within the meaning described in paragraph b) of no. 3 of article 1 of Order no. 1446-C/2001 of 21 December (hereinafter referred to simply as "Order"), combined with the provision in paragraph d) of no. 3 of article 1 and with paragraph c) of article 2 of the same normative, being subject to compliance with the Arm's Length Principle, enshrined in no. 1 of article 63 of the IRC Code.
III.1.1.2. Assessment of the conformity of prices practised with the Arm's Length Principle
III.1.1.2.1. Subjection of the operation to the Arm's Length Principle
The Arm's Length Principle is transposed into the national legal system in no. 1 of article 63 of the IRC Code, which provides that "in commercial operations, including in particular operations or series of operations on goods, rights or services, as well as in financial operations, carried out between a taxpayer and any other entity, subject or not to IRC, with which the taxpayer is in a situation of special relationships, terms or conditions must be contracted, accepted and practised that are substantially identical to those that would normally be contracted, accepted and practised between independent entities in comparable operations".
Paragraph a) of no. 3 of article 1 of the Order regulates the concept of operations to which no. 1 of article 63 refers and subjects to compliance with the Arm's Length Principle, stating that the term "operations" covers financial operations and, as well, commercial operations, including any operation or series of operations concerning tangible or intangible goods, rights or services, even if carried out within the framework of any agreement, in particular of cost-sharing and provision of intra-group services, or of a change in business structures, especially when this involves transfer of intangible elements or compensation for damages incurred or lost profits.
Additionally, the Order, recognizing the technical complexity of the realities involving the application of the Arm's Length Principle and the validation of its compliance, refers in its Preamble that "(…) in cases of greater technical complexity, it is advisable to consult the OECD reports that develop this matter, and whose adoption by member countries is the subject of recommendations approved by the Council of this international organization".
The Guidelines issued by the OECD constitute a source of paramount importance in the interpretation of transfer pricing issues, in particular in the applicability of the Arm's Length Principle. In this regard, Stephen Callahan4 states "The OECD through the Committee on Fiscal Affairs has encouraged Tax Administrations and taxpayers to adopt common international taxation principles, for the purpose of stimulating trade and avoiding international double taxation".
In the same sense, Helena Evangelista e Sousa5 states that "Portugal has widely embraced OECD transfer pricing guidelines, not refraining from expressly referring to this 'source'. In fact, both in preliminary documents and in case law, we find assumed references to OECD Reports and Recommendations. (...) On the case law front, there are several judicial decisions in which mention is made of OECD work on transfer pricing, not only from the side of taxpayers but also in the very reasoning of the court's position and of the Tax Administration".
4 "The New Transfer Pricing Rules in Portugal", Fisco nos. 97-98, September 2011, p. 39-46.
5 "The OECD's Contribution to Transfer Pricing Discipline", in "Transfer Pricing Practical Cases", Life Economics, 2006, page 205.
In these terms, having demonstrated the existence of special relationships between the entities involved in the operation of transfer of steel product commercialisation business, as well as the subjection of this operation to the Arm's Length Principle (no. 1 of article 63 of the CIRC in combination with no. 3 of article 1 of the Order), in articulation with the OECD Guidelines, it is now important to demonstrate that the terms and conditions practised in said linked operation differ from those that would normally be contracted, accepted and practised between independent entities in comparable operations, thus violating the Arm's Length Principle.
To verify the conformity of these operations with the Arm's Length Principle, nos. 6 and 13 of article 63 of the IRC Code and articles 13 and 14 of Order 1446-C/2001 require the registration and possession of an extensive set of relevant information, so that it is possible to determine, at any time, the substance of the economic facts and the logical reasons justifying the behaviour of the taxpayers.
Given that the conditions required for the obligation to prepare the process of tax documentation for purposes of transfer pricing are met, the burden of proving the market parity of the terms and conditions agreed, accepted and practised in operations carried out with related entities falls on the taxpayer. This obligation includes the proof of selection and use of the method or methods most appropriate for determining transfer prices, which provide a greater approximation to the terms and conditions practised by independent entities and which ensure the highest degree of comparability of operations carried out with others substantially identical, carried out by independent entities in normal market situations.
Regarding the burden of proof in transfer pricing matters, the Arbitral Decision of 8 July 2016 of the Centre for Administrative Arbitration (CAAD), on Case no. 733/20[1]5-T, states that "on the practical plane, and at a first level, taxpayers who achieve the volume of net sales and other income provided for by law will have to prepare transfer pricing documentation so as to support the parity of the conditions and terms practised in transactions with related parties with those carried out in similar conditions by non-related parties". It further adds that "The AT, when inspecting the taxpayer, will have access to this information and will verify compliance with the legal requirements of elements concerning transfer pricing, in particular compliance by the linked operation of the arm's length principle".
III.1.1.2.2. Description of the operation and terms and conditions practised
III.1.1.2.2.1. Description of the activity carried out by B... and results achieved
B..., Lda is a resident company, located in ..., with tax ID no. ..., which carries out as its principal activity a commercial, industrial and agricultural activity with CAE 46720 – Wholesale trade in ores and metals.
B... operated mainly in the Portuguese market, with the objective of selling wire, bar and mesh produced by group companies to be commercialised to entities outside the group.
Its activity was supported by distribution contracts (see Annex no. 1), established with the productive companies, namely G..., H... and I... also belonging to group A.... These contracts contained the obligations of the parties and covered supply conditions, margins practised, payment conditions and responsibility for the risk of non-payment by end customers.
The existing distribution contracts conferred on B... the right to distribute in Portuguese territory all industrial products manufactured by group A... companies based in Portugal.
Its main obligations, as defined in the distribution contract, were:
-
"Endeavour to promote and sell the Products and, in general, increase the sales volume thereof;
-
Communicate with necessary advance notice to the productive companies the requests for products;
-
(...)
-
Organise transport logistics and customs management, namely by contracting in the name of the productive companies the means of transport, negotiating their respective prices in the best possible conditions on the market and, in any case, under competitive conditions, communicating to the productive companies the services contracted with sufficient advance notice so that these may organise the necessary means for loading and delivery;
-
Resolve situations of non-conformity in the commercialisation of goods whenever they result from causes attributable to it;
-
Assume the risk of non-payment by end customers."
The economic performance of B... in the years prior to 2013 had been positive, as evidenced by the financial statements [...]. The economic situation of B... deteriorated in the year 2013 and subsequently, with the reduction in sales volume. In 2015, the financial statements reflected the cessation of the company's commercial activity.
Table 2 – Sales volume of company B... 2011 - 2015
| 2011 | 2012 | 2013 | 2014 | 2015 | |
|---|---|---|---|---|---|
| Sales and provision of services | 244,934,934.00 | 210,385,898.00 | 124,207,479.00 | 33,658,646.00 | 0.00 |
| Annual growth rate (%) | - | -14.1 | -41.0 | -72.9 | -100.0 |
| Sales and Provision of Services | 244,934,934.00 | 210,385,898.00 | 124,207,479.00 | 33,658,646.00 | 0.00 |
| Of which: | |||||
| Sales | 242,634,003.00 | 209,142,922.00 | 124,080,007.00 | 33,522,182.00 | 0.00 |
| Provision of Services | 2,300,931.00 | 1,242,976.00 | 127,472.00 | 136,464.00 | 0.00 |
| COGS | 240,472,122.00 | 206,996,058.00 | 122,686,225.00 | 33,249,993.00 | 0.00 |
| Operating Result (EBIT) | 1,763,416.00 | 2,601,730.00 | 399,113.00 | 577,092.00 | 419,735.00 |
Source: IES B... 2011, 2012, 2013, 2014 and 2015
From the analysis of information contained in annex O of the IES of B... it was possible to ascertain that the main customers were loyal, with a stable commercial relationship existing between supplier and customers.
More specifically, between 2005 and 2012, the commercial relationships established by B... had the following characteristics (detailed information in Annex no. 2)6:
• During this time interval (8 years) B... made sales to 75 different companies;
• The majority of sales was made to a stable customer base (38 companies), which accounted for 88.9% of the company's total sales between 2005 and 2012;
• In 2012, 82.3% of sales were concentrated in 14 companies and 12 of these companies showed a loyalty period of at least 8 years;
• Of the companies that made purchases from B... in 2012 (55 companies), 92.7% had a loyalty period greater than 3 years.
6 This analysis was performed based on the value of sales per customer declared by the taxpayer in annex O of the IES for each year. In accordance with the completion instructions, this annex should include customers with registered office in national territory, whose annual sales value exceeds 25,000 euros. The value to be mentioned should correspond to the sum of the values contained in the invoices (excluding the values relating to advances), issued to the same customer, net of any discounts mentioned therein and with VAT included.
In summary, B... assumed the essential commercial and logistical functions for the distribution and placement on the market of steel products manufactured by the industrial companies of group A..., and this activity enabled it to achieve significant operating results until 2013. The market segment in which it operated was stable and the main customers were loyal, maintaining a solid acquisition volume, aligned with the economic situation and with the evolution of demand in the business sector in which they were inserted.
III.1.1.2.2.2. Entry of C... into the business of distributing products manufactured by group A...
C..., Lda is a resident company with tax ID no. ..., located in ..., Palmela, which carries out as its principal activity a commercial, industrial and agricultural activity with CAE 46720 – Wholesale trade in ores and metals.
The company was established in January 1992 and its principal activity consisted of the import, export, commercialisation and distribution of steel products, namely ferrous and non-ferrous metals and their transformation7.
7 Information obtained in table 0501-A "Identification of the entity" of the IES of C... for 2014, ....
On 23 May 2013, 38.98% of the capital of C... was acquired by company A... (dominant company of the L... group in Portugal) from M... España, SA and O..., SL. Given that the remaining capital (62.02%) already belonged to the L... group, it came to hold 100% of the company's capital and, therefore, full control thereof.
The chain of shareholdings was concentrated in companies registered in Spain, originating from company L..., which held company X... (99.1%). The capital of LAF 2000 was shared by X... (93.99%) and L... (6.01%), and LAF 2000 held 62.02% of C... in 2014 (see organisational chart identified as Figure 1 in point III.1.1.1 of this document).
Following this acquisition, the sales volume evidenced in the item "Sales and provision of services" of C... recorded sharp growth, evolution symmetric to the decrease in the sales volume of B.... Also in this year C... came to show a positive Operating Result (EBIT), a situation contrary to that recorded in previous periods8.
8 The company showed negative Operating Results for at least since 2006, according to information declared in the IES.
Table 3 – Sales volume of company C... 2011 - 2015
| 2011 | 2012 | 2013 | 2014 | 2015 | |
|---|---|---|---|---|---|
| Sales and provision of services | 5,352,045.61 | 1,913,977.64 | 50,744,192.50 | 142,348,224.00 | 165,582,672.00 |
| Annual growth rate (%) | - | -64.2 | 2,551.2 | 180.5 | 16.3 |
| Sales and Provision of Services | 5,352,045.61 | 1,913,977.64 | 50,744,192.50 | 142,348,224.00 | 165,582,672.00 |
| Of which: | |||||
| Sales | 5,304,022.85 | 1,909,053.36 | 50,723,191.50 | 142,114,353.00 | 165,081,530.00 |
| Provision of Services | 48,022.76 | 4,924.28 | 21,001.00 | 233,871.00 | 501,142.00 |
| COGS | 4,931,936.85 | 1,852,128.42 | 48,743,767.00 | 138,861,480 | 161,936,851.00 |
| Operating Result (EBIT) | -2,226,409.78 | -1,907,179.01 | 344,074.00 | 4,474,096.00 | 3,267,829.00 |
Source: IES C... 2011, 2012, 2013, 2014 and 2015
Based on the distribution contract made available [...], it was found that company G... (tax ID no. ...) established with C... on 1 August 2013 supply conditions similar to those practised with B.... There was textual equivalence of the clauses contained in the distribution contract established between companies G... and C... (which we attach in Annex no. 3), when compared with the same clauses in the distribution contract established between G... and B.... It was confirmed that annex I to said contract, which established annually the margin to be practised between the companies, was identical.
In annex I to the contract between G... and B... (see Annex no. 1):
Discounts applicable for determination of the sale price
YEAR 2014
Amendment to the Commercial Distribution contract of 07 March 2005
Revision in accordance with clause 2.2
The discount applicable for determination of the sale price of G... to B... of finished product shall be 0.75% on the sale price agreed by B... with end customers.
In annex I to the contract between G... and C... (see Annex no. 3):
YEAR 2014
Amendment to the Commercial Distribution contract of 01 August 2013
Revision in accordance with clause 2.2
The discount applicable for determination of the sale price of G... to C... shall be 0.75% on the sale price agreed by B... with its end customers.
It should be noted that in annex I to the contract of G... with C..., the designation "B..." was found, although we attributed this reference to an oversight by the taxpayer in its drafting, such that where it reads "B..." should read "C...".
It was thus verified that the remuneration margin attributed to C... for the commercialisation of products manufactured by the productive entities of the group corresponded to that practised with B....
It should be stressed, however, that the following terms were excluded from the new contract, no longer appearing in the contract established between G... and C...:
i) In the second clause - "Price and form of payment" - the wording was excluded: "2.5. In case of breach of performance, B... shall be obliged to pay to G... interest on arrears at the rate of EURIBOR + 1%, for the period between the date of maturity of the Debit Note and the date of effective and complete payment";
ii) As well as in the third clause - "Obligations of the parties" - the following point was not included in the obligations of C...: "(iv) Pay invoices promptly".
It was thus concluded that the contract established between one of the productive companies with a new distributor – company C... – maintained textually the terms contracted with B..., although two obligations – payment of interest on arrears and timely payment of invoices – were excluded, which result in a reduction of the risks assumed by the new distributor, which were transferred to the productive entity (G...).
Additionally, it was found that, between G... and C..., a financial discount for prompt payment was practised in the amount of € 1,121,457.05 in 2014 (€ 628,353.85 in 2013), which provided a gross margin ("GM") of sales of 2.34% to C... (while in B... the GM of sales was 0.82 in 2014, with no prompt payment discounts being applied).
III.1.1.2.2.3. Operation of transfer of B...'s business to C...
The restructuring of the commercialisation function and distribution of the L... group in Portugal comprised, in a first phase, the acquisition of a relevant part of C... (38.98%) which enabled it to assume control of the entirety of the company. Also in 2013, a process was initiated for the transfer of the business of commercialisation and distribution of steel products pursued by B... to C..., which culminated in 2015, a period in which the entirety of the activity came to be concentrated in C....
Given that B... was a commercial company that did not possess tangible assets, the operation for the transfer of the business centred on the transfer of intangibles, namely customer portfolio and know-how, as follows.
In the course of the inspection procedure, it was found that, following the signing of the distribution contract between the productive companies and C..., the transfer of the commercialisation business of steel products from B... to C... was effected through a circular sent by e-mail to the majority of B...'s customers.
In that communication, sent by B...'s sales staff to the company's customers, at the request of the Commercial Director Portugal and Spain of the group, Mr N..., it was indicated that "from the next day 1 August 2013 the invoices for our deliveries of reinforced materials and welded mesh, which had been issued by B..., Lda, will be issued by our company C..., Lda". As the reason, the communication referred to "the constant need to improve the distribution of our products, especially in the Portuguese market". As an example, we attach a copy of the circular made available by company P... (tax ID no. ...), one of B...'s main customers (Annex no. 4).
The transfer of the business was presented to customers as a mere transition of the invoicing obligation from B... to C..., as if it were a simple operation of change in the company's designation, without any further changes.
Showing the need to obtain information on the commercial relationship existing between B... and its customers, a circular was sent to the eight main customers of the company (purchase volume greater than 10 million Euros). It was found that the clarifications obtained were coherent, notably the following:
i) A communication was received – referred to above – which directed orders that would be requested from B... to C...;
ii) Orders were contracted through e-mail message or telephone;
iii) The procedures arising from the commercial interaction of company B... with its customers were maintained with the transfer of the business to C...: orders were requested and confirmed by e-mail or by telephone and then their formalisation was carried out through a "purchase order" or "order notes"; B... issued the delivery note, which accompanied the goods, and sent the invoice by post;
after the transfer of the business, all procedures were maintained within the sphere of C...;
iv) With regard to acquisition conditions, in the context of setting the prices practised with each customer, company Q..., SA (tax ID no. ...), stated that "The prices are communicated to us by the Companies monthly by telephone or in visits made by the Companies' representatives to our company. It should be noted that the practice is that of placing an order with quantities that will be collected over a certain period of time – 1 to 2 months, as a rule";
v) The internal customer code assigned by B... to its customers was maintained in C...; for example, company R... (tax ID no. ...) had the internal customer code "2012" in B... and C... issued its invoices with an equal code;
vi) At least two situations were communicated in which an order placed with B... corresponded to a supply made by C...:
[...]
It was thus found that C... assumed the market position achieved by B... through the transfer of the customer portfolio, without any commercial effort, merely by receiving the orders that B...'s customers addressed to it or by satisfying orders that had already been agreed with B..., at a request from the same, determined by a decision of the group.
Despite C... developing its own activity, prior to acquisition by company A... and to the contracting of the commercial and distribution function with the industrial companies of which it is a participant, the use of its existing customer base was almost nil as follows is demonstrated.
Following a comparative analysis of C...'s customers in 2012, 2013 and 20149 it was found that, in 2013, of the customers existing before the transfer of the business, only two made purchases, namely companies identified with no. 27 and no. 38, and these purchases represented only 0.17% of the total sales in 2013. These customers no longer made purchases in 2014 (see Annex no. 6).
9 Analysis performed based on information declared by C... in Annex O of the IES for each year.
On the other hand, the use of the customer base of B... was complete: almost all customers of C... (in 2013, 2014 and 2015) had already been customers of B... in 2012. The new customers (except related companies) represented a diminute percentage of sales (less than 1%), in the periods following the transfer of the business (see Table 4 below and, for greater detail, see Annex no. 7).
Table 4 – Sales of C... to B...'s customers 2013-2015
| 2013 | 2014 | 2015 | |
|---|---|---|---|
| Total sales | 52,206,578.00 | 152,023,078.00 | 176,733,331.00 |
| Value of Sales to customers of the B... base in 2012 | 51,950,788.00 | 148,962,337.00 | 173,970,385.00 |
| Value of Sales to new customers | 255,790.00 | 3,060,741.00 | 2,762,946.00 |
| Value of Sales to new customers except related companies | 255,790.00 | 731,924.00 | 1,459,146.00 |
| % Sales to new customers except related companies | 0.490% | 0.481% | 0.826% |
Source: IES C... 2013 (2013-...-...), 2014 (2014-...-...) and IES B... 2012 (2012-...-...)
Thus, the customer base, which constitutes one of the principal assets of a commercial company and which underpinned C...'s business in the year 2013 and subsequently, was composed almost exclusively of customers who, at the indication of the group, transferred their purchases from B... to C..., as if it were a single company.
In accordance with Accounting Standard for Financial Reporting 6 (NCRF 6), the qualification of the customer portfolio as an intangible asset is associated with its identifiability, control over a resource and the existence of future economic benefits.
Regarding the "control" criterion, §16 of NCRF 6 states that "In the absence of legal rights to protect relationships with customers, exchange transactions of the relationships themselves with customers or similar ones (...) constitute evidence that the entity is, nevertheless, capable of controlling the future economic benefits expected to flow from the relationships with customers. Given that such exchange transactions also constitute evidence that the relationships with customers, in themselves, are separable, such relationships with customers satisfy the definition of an intangible asset". §17 of the same accounting standard further states that "the future economic benefits flowing from an intangible asset may include revenue from the sale of products or services, cost savings, or other benefits resulting from the entity's use of the asset".
Parallel to the transmission of the customer portfolio, workers from B... also moved to C....
In the inspection action performed, it was found that, with respect to human resources, in the period analysed, the number of people remunerated in the service of B... remained stable until May 2014 (see Annex no. 8), the month in which the existing employees ceased to be part of the company's staff, with no record of compensation, and in the same month, began functions in C... (see Annex no. 8).
It should be added that, with the gradual diminution and expected cessation of B...'s commercial activity, the employment contracts of the persons assigned to it would have been terminated, with an eventual attribution of the corresponding legal compensation. In the situation described, there is no record of payment of compensation to employees of B..., who came to perform functions in C..., still during the same month.
The B... staff that ceased functions in May 2014 was not replaced, such that the company remained in activity after that date, but without employees.
Based on information provided by the taxpayer, the functions performed by the four employees in B...'s service until May 2014 were as follows: Commercial Director, Commercial Technician, Commercial Administrator, Financial Direction Administrator (see Annex no. 9). These were the only employees of B... and the functions they came to perform in C... would have been identical, that is, they centred on the performance of functions related to prospecting and contacting customers, possible advice on purchases and provision of information on available stocks, definition/communication of prices, recording and processing of orders, management of deliveries, reception of suggestions, assessment of customer satisfaction degree, collection of opinion on the product and control of receipts.
For seven months, between October 2013 (the month following the departure of five employees from C..., from a total of six in service) and until the integration of the four former B... employees, which occurred in May 2014, C... maintained only one employee.
In the circular referred to above, sent to the main customers of B..., identification of the commercial contact of each company was requested and single contacts were indicated for both companies. The name most frequently mentioned was that of Mr S..., who worked for B... and who is presumed, from the information provided by the companies contacted, to have transferred to C....
On the other hand, the competencies of the existing C... employees before 1 August 2013 were not utilised in the new business area, as only one of its workers remained in the company after the start of the activity of distributing products manufactured by group A.... By analysis of the Monthly Remuneration Declaration (DMR), the staff in existence in 2012 (13 employees) ceased to be part of the company in 2012 (reduction of 7 people in service) and 2013 (minus 5 employees), with only one C... worker remaining in service from October 2013 onwards.
This means that the unprofitable business existing in C... before 2013 did not have continuity. Instead, there was a break with the functions previously performed, with the absorption of B...'s human resources and the direction of all of the latter's customers.
The emptying of B...'s functions and the transition of its employees to C... also configures a component of transfer of the business as it meant that the know-how, procedures, tacit knowledge, knowledge of the market and history of relationship with customers existing in B... was transferred to C....
The human resources of a company engaged in commerce and distribution are a crucial element for its performance, in a B2B10 context, as it is through them that the link to the market is established, both as agents of diffusion of information about the company and as a means of gathering information about competition and customer needs, in particular in a commercial structure of reduced size.
10 Business to Business, that is, a market in which all transactions are established between companies.
Table 5 – Human resources of B... in the period 2012-2015
| B... | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|
| People remunerated in service of the company | 4 | 4 | 4 | 0 |
| Number of hours worked | 7,572 | 7,744 | 2,240 | 0 |
| Service providers | 0 | 0 | 0 | 0 |
| Number of hours worked | 0 | 0 | 0 | 0 |
| Personnel expenses | 365,966.00 | 337,388.00 | 100,022.00 | 0.00 |
| Remuneration of governing bodies | 48,836.00 | 0.00 | 0.00 | 0.00 |
| Personnel remuneration | 251,660.00 | 274,114.00 | 79,833.00 | 0.00 |
| Compensation | 1,152.00 | 0.00 | 0.00 | 0.00 |
Source: IES B... 2012, 2013, 2014 and 2015
Table 6 – Human resources of C... in the period 2012-2015
| C... | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|
| People remunerated in service of the company | 13 | 6 | 5 | 5 |
| Number of hours worked | 26,499 | 6,336 | 9,200 | 9,297 |
Source: IES C... 2012, 2013, 2014 and 2015
It should be added that the business carried out by C... was distinct from that of B..., as between the acquisition and sale of products it included an intermediate operation of cutting/transformation of the products, that is, in the value chain the company positioned itself as a customer of B.... Its business consisted of the acquisition of a large volume of steel products, followed by the performance of transformation operations, and subsequent sale to other companies in smaller quantities.
From the analysis of the CAE code of the customers of both companies, identified in annex O of the IES of 201211, it resulted that the areas of activity in which they operated were different. However, taking into account the scope of the classification, some specific similarities were found (see Annex no. 10).
11 IES B... 2012 (2012-...) and IES C... 2012 (2012-...)
The market segment of B...'s customers was composed of companies engaged in Wholesale trade in ores and metals (47.3%), Wholesale trade in construction materials (12.7%), Manufacture of metal construction structures (7.3%) and Manufacture of wire products (7.3%).
The customer companies of C... were mainly inserted in business sectors that incorporated in their production the materials acquired from C..., namely, Construction of Buildings (33.3%) and Manufacture of metal construction structures (16.7%).
As stated above, it is considered demonstrated that the intangible assets that were in the sphere of B... – portfolio of loyal
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