IRC RETGS: Deductibility of Financial Charges on Share Acquisitions by SGPS Holding Companies

ARBITRAL AWARD

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-chair), Prof. Dr. Tomás Castro Tavares and Prof. Dr. Ana Maria Rodrigues (arbitrator-members), designated by the Ethics Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 30-03-2015, agree as follows:

1. Report

A…, SGPS, S.A., NIPC …, with registered office at Rua …, number …, …, …-… …, filed a request for constitution of a collective arbitral tribunal, pursuant to article 2, section 1, paragraph a) and articles 10 et seq. of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority is the respondent, with a view to declaring unlawful the assessment of Corporate Income Tax No. 2013 …, the assessment of compensatory interest No. 2014 …, and the corresponding Statement of Account Reconciliation No. 2014 … (compensation No. 2013 …) relating to the year 2011, as well as the ruling of the Director of the Large Taxpayers Unit (Tax Management and Assistance Division) of 16-10-2014, issued in the gracious complaint proceeding No. … 2014 ….

The Claimant further requests compensation for improper security.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 25-01-2015.

In accordance with the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the LRAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable period.

On 10-03-2015, the parties were duly notified of such designation and did not express any intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11, section 1, paragraphs a) and b) of the LRAT and articles 6 and 7 of the Code of Ethics.

Thus, in compliance with the provision in paragraph c) of section 1 of article 11 of the LRAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 30-03-2015.

The Tax and Customs Authority responded, arguing that the claim should be dismissed as unfounded.

By ruling of 18-05-2015, it was decided to dispense with the meeting provided for in article 18 of the LRAT and that the proceedings continue with submissions.

The parties filed submissions.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2, section 1, paragraph a), and 30, section 1, of Decree-Law No. 10/2011, of 20 January.

The parties are duly represented and enjoy personality and judicial capacity, are legitimate and are represented (articles 4 and 10, section 2, of the same law and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities and no exceptions were invoked.

Thus, there is no obstacle to the consideration of the merits of the case.

2. Facts

2.1. Proven Facts

Based on the elements in the case file and the administrative proceedings attached to the record, the following facts are considered proven:

a) The Claimant A… SGPS S.A. (A…) is a Portuguese public limited company whose corporate purpose is the management of shareholdings in other companies, as an indirect form of exercise of economic activities, acting as a Holding Company (SGPS).

b) The Claimant is, in the year 2011, the parent company of a group of companies taxed in accordance with the Special Tax Regime for Groups of Companies.

c) The Claimant is subject to the general system of Corporate Income Tax, with its tax period coinciding with the calendar year.

d) In the year 2011, the following companies were integrated into that group, among others:

– B…, SGPS, S.A., holder of identification number … (hereinafter "B… SGPS"):

– C…, SGPS, S.A., holder of identification number …. (hereinafter "C… SGPS");

e) In compliance with Service Order No. OI … of 21-05-2013, an external, multi-disciplinary inspection action was carried out on the accounting and tax elements relating to the year 2011, of a company in the Group, the company B… SGPS, SA (with NIPC …);

f) Following that inspection, a correction of a purely arithmetic nature was made to the taxable income in the amount of €1,375,146.93, consisting of the non-acceptance of financial charges incurred with the acquisition of capital shares, with the Tax and Customs Authority understanding that such charges would not be admissible, in any case, in light of the provisions of article 23 of the Corporate Income Tax Code;

g) In compliance with Service Order No. OI2013 …, of 18-07-2013, an external, multi-disciplinary inspection action was carried out on the accounting and tax elements relating to the year 2011, of another company in the Group: the company C… SGPS, SA (with NIPC …);

h) Following the inspection referred to in the previous paragraph, a correction of a purely arithmetic nature was made to the taxable income in the amount of €1,068,839.57, consisting of the non-acceptance of financial charges incurred with the acquisition of capital shares, with the Tax and Customs Authority understanding that such charges would not be admissible, in any case, in light of the provisions of article 23 of the Corporate Income Tax Code;

i) In compliance with Service Order No. OI2013 …, the Claimant, in its capacity as parent company of GROUP A…., was subject to an inspection procedure for the year 2011, with a view to reflecting in the taxable result of the group the corrections made in Corporate Income Tax at the individual taxable result of the companies in the group, namely of company B… SGPS, SA and company C… SGPS, SA, making a purely arithmetic correction to the taxable profit of the Claimant in the total amount of €2,443,986.50;

j) Following that inspection, the Tax Inspection Report was prepared, a copy of which constitutes document No. 3 attached to the request for arbitral pronouncement, the content of which is considered as reproduced;

k) Subsequently, the Claimant was notified of the acts of assessment of Corporate Income Tax and compensatory interest that are the subject of this proceeding and the corresponding account reconciliation, from which results a tax obligation to pay €672,217.61 (six hundred seventy-two thousand, two hundred seventeen euros and sixty-one cents) (Document No. 2 attached to the request for arbitral pronouncement, the content of which is considered as reproduced);

l) The Claimant filed a gracious complaint, petitioning for the annulment of the acts of assessment of Corporate Income Tax and compensatory interest and of the said account reconciliation (Document No. 4 attached to the request for arbitral pronouncement, the content of which is considered as reproduced).

m) By ruling of 16-10-2014, the Director of the Large Taxpayers Unit (Tax Management and Assistance Division) dismissed the gracious complaint referred to in the previous paragraph, manifesting agreement with Information No. …-…/2014, a copy of which is contained in document No. 1 attached to the request for arbitral pronouncement, the content of which is considered as reproduced, which contains, among other things, the following:

3.1.1 Description of the correction (facts and legal-tax framework)

In compliance with Service Order No. … 2013 … by the inspection services of the Large Taxpayers Unit whose object was verification of compliance with the tax obligations inherent to the application of the Special Tax Regime for Groups of Companies (RETGS), an arithmetic correction was proposed to the taxable income of the Claimant in the amount of €2,443,986.50, resulting from corrections to the taxable profit in the sphere of the subsidiaries.

The Claimant is the parent company of companies B…, SGPS, S.A. (hereinafter B…) and C…, SGPS, S.A., (hereinafter C…) which in the course of the inspection actions carried out under Service Orders No. OI2013 … and OI2013 …, respectively, corrections were proposed to the taxable profit of both.

At its origin is an improper application of the provisions of section 2 of article 32 of the Tax Benefits Statute (TBS) regarding the calculation of financial charges incurred with the acquisition of capital shares, fact which led the inspection services to propose corrections in the amount of €1,375,146.93 and €1,068,839.57 (total of €2,443,986.50) in the taxable profits of B… and C…, respectively.

This correction results from the position that has been followed by the Tax Authority services regarding the nature of supplementary contributions and ancillary contributions that follow the regime of supplementary contributions, and their subsumption to the concept of capital shares for purposes of the aforementioned section 2, supported by the legal regime of SGPSs in force, their accounting classification in light of the normative POC/SNC, always considering the legal-tax logic, as well as the existing administrative instructions on the matter.

Based on the framework established, the inspection services had no doubts in considering supplementary contributions as capital shares and, by force of the aforementioned normative, annulled the deduction from taxable profit of the amount recorded as financial charges incurred with the granting of said supplementary contributions.

3.1.2 Brief allegations of the taxpayer, now complainant

The Claimant contests in full the corrections in the sphere of its subsidiaries B… and C… and their justification, reiterating what it had already defended in the hearing and refuting the arguments advanced by the inspection services in their response, arguing the inclusion by the inspection services of a company in the calculation of financial charges of C... whose acquisition was achieved through an exchange of shares and not through financing, passing through the classification of ancillary contributions and supplementary contributions in the legal, accounting and legal-tax framework, and their (non) equating to capital shares, refuting, in general terms, all the arguments contained in the final inspection report, based on their interpretation of law, relying on possible doctrine and jurisprudence.

Of the financial charges with D…

The Claimant states that for the calculation of non-deductible financial charges in the sphere of C… was improperly included the acquisition of company D... – whose tax cost amounts to €45,000,000.00 – for purposes of the calculation of non-deductible financial charges, since it was acquired through an exchange of shares, in the context of a corporate reorganization.

Considering that the exchange of shares is neutral for tax purposes, the inspection services should only have considered the value corresponding to the acquisition of shareholdings in E... since only this was involved with financing.

Of ancillary contributions and the lack of classification in the concept of capital shares

• Ancillary contributions in light of company law

Based on the content of Circular No. 7/2004, the inspection services of the Large Taxpayers Unit argue that the concept of capital shares referred to in section 2 of article 32 of the TBS includes ancillary contributions that follow the regime of supplementary contributions.

The Claimant, in turn, argues that although the role played by supplementary contributions is that of a complement to capital stock, it does not mean that it should be confused with the same.

This understanding is defended by various authors, so it becomes evident that the concept of capital and ancillary contributions that follow the regime of supplementary contributions do not overlap, since the first refers, within the framework of company law, to "capital stock," and if capital means that then "capital shares" can only mean "parts of capital stock" or, in other words, "shareholdings."

– Of the accounting classification of capital shares and ancillary contributions

The argument regarding the interpretation given by the inspection services of the Large Taxpayers Unit that determined that supplementary contributions were subsumable to the concept of capital shares by force of the accounting requirement to recognize in the sphere of the beneficiary such contributions in a capital account, namely account 53 - "Other equity instruments," is entirely refuted by the Claimant.

At this point, the Claimant resorts to the considerations of other authors on the accounting classification of these instruments both in the former POC and the current SNC, and to the sense given to the concept of "capital," "capital shares," and "supplementary contributions" in the accounting sphere, and how accounting has not assimilated these two latter figures, since their recording is made in separate sub-accounts.

– Of the tax classification given to capital shares and ancillary contributions

In this respect, the Claimant begins by explaining the rationale of section 2 of article 32 of the TBS, provision to which the Claimant itself and its subsidiaries B… and C... are subject, and how the figures of "capital stock" and "supplementary contributions" do not overlap.

It also suggests that Circular No. 7/2004, of 30 March, makes a clear distinction between "capital shares" and "supplementary contributions," not considering the latter within the scope of application of the provisions of section 2 of article 32 of the TBS, so it cannot in any way serve as justification for highlighting the similarity of these figures.

After an extensive hermeneutic exercise on the rule in question and a systematic analysis of the Corporate Income Tax Code, the Claimant notes that the inspection services made an economic or restrictive interpretation of the law, limiting its scope, and in light of the rules of interpretation, it is in fact "contrary to the letter of the law and contrary to the spirit of the legislature."

Among other things, it does not fail to bring to bear the arbitral decisions No. 12/2013T and No. 24/2013T of the Administrative Arbitration Center, as well as decisions No. 80/2013T and No. 39/2013, whose object is precisely on the legal nature of supplementary contributions and the deductibility of interest incurred with their acquisition in light of article 32 of the TBS and article 23 of the Corporate Income Tax Code.

– Of non-deductibility in light of article 23 of the CIRC

As a subsidiary argument, it is argued by the inspection services of the Large Taxpayers Unit in the Inspection Report that the tax deductibility of these charges is prohibited in light of article 23 of the CIRC, based on existing jurisprudence on the matter, namely in the Rulings handed down in the scope of proceedings No. 186/06 and No. 1046/05 of the Supreme Administrative Court, and No. 5251/11 of the Central Administrative Court of the South.

The Claimant does not accept this jurisprudential basis as grounds for the non-deductibility of financial charges since all the cited Rulings concern companies that are not holding companies, its case.

3.1.3 Assessment

It should be noted that this correction had already been contested in the hearing, before the preparation of the final report, in which the inspection services did not consider as valid in light of the applicable legal framework the arguments put forward by the Claimant, thus deciding to maintain the conclusions contained in the project, which gave rise to the correction now contested.

Of the financial charges with D…

The Claimant states that the acquisition of company D... by C... took place in a context of corporate reorganization and did not have any associated financing since it was achieved "through an exchange of shares, neutral for Corporate Income Tax purposes, carried out with the former shareholder of D…, company C…, S.A.," therefore no financial charges associated with this exist.

Considering that the costs incurred with financing concern only the acquisition of shareholdings in company E..., C..., for purposes of calculating non-deductible financial charges pursuant to article 32 of the TBS, followed a direct allocation method with the objective of determining the charges it actually incurred with the acquisition of capital shares, instead of applying the method demonstrated in Circular No. 7/2004 of the Tax Revenue Directorate.

Now, the Claimant understands that the method demonstrated in the above-cited administrative instruction is applicable only and when "it is not possible to adopt a 'direct' or 'specific allocation method,' as indeed results from the spirit and letter of the law."

Despite it being recognized here the merit of its reservations regarding the possibility of deviations concerning actual income taxation, the Claimant misunderstands, for such derogatory possibility of the method demonstrated in the circular is not possible in any case.

This follows from what is stated in paragraph 7 of Circular 7/2004 of the Tax Revenue Directorate, where it is stated that "as to the method to use for purposes of allocating the financial charges incurred with the acquisition of shareholdings, given the extreme difficulty of using, in this matter, a direct or specific allocation method and the possibility of manipulation that it would permit, such allocation must be carried out based on a formula (...)."

Despite the circulars issued by the Tax Authority not constituting a source of Tax Law, they are, as the Claimant is aware, binding for the Tax Authority services, so there can be no other position for this unit of services than the judicious application of this instruction.

Given this, the methodology followed by the inspection services stems from strict compliance with what is stated in the circular, and this (methodology) is mandatory and without any possibility of derogation by the aforementioned paragraph 7, so in the same way provenance cannot now be given to the Claimant's claim regarding this part of the claim.

Of the financial charges incurred with the acquisition of capital shares

As mentioned, at the origin of this correction is the qualification that the Tax Authority attributes to ancillary contributions that follow the regime of supplementary contributions for purposes of both the CIRC and the TBS.

Let it first be said that for the Large Taxpayers Unit there is a well-defined orientation at the Tax Authority regarding the tax treatment to be given, under Corporate Income Tax and TBS, to supplementary contributions and ancillary contributions that follow the regime of supplementary contributions, expressed in Information No. …/10 of 7/10/2010 of the Tax Revenue Directorate, as well as in Information No. …/08 and No. …/11 also of the Tax Revenue Directorate from which this same understanding can be inferred.

This treatment consists of qualifying this type of contribution as capital shares for purposes of applying the provisions of sections 3 to 5 of article 23, which is used with the same meaning in section 2 of article 32 of the TBS, thus precluding from contributing to the formation of taxable profit the gains and losses generated with their disposal, as well as the financial charges incurred with their obtainment, as well as any other expenses related to their transmission that meet the requirements contained in sections 3 to 5 of article 23.

In fact, this orientation already stems from numerous opinions of the Tax Studies Center regarding the question of the treatment to be given to gains and losses generated with the disposal of ancillary contributions that follow the regime of supplementary contributions and in which the conclusion is univocal to integrate and/or equate these contributions to capital shares, stating that this concept refers to capital equity and not, as the Claimant argues, to shareholdings, maximum, to shares and quotas.

The Claimant's defense consists of the interpretation of the concept of capital shares as referring strictly to shareholdings and not, as argued by the Tax Authority in administrative doctrine, to capital equity, making that, for purposes of the present case, ancillary contributions that follow the regime of supplementary contributions are excluded from the scope of application of the provisions of article 32 of the TBS.

Now, considering that the exposition that is in the respective Inspection Reports to justify this correction, both in the project and in the response to the right to hearing, regarding the extension of the concept of capital shares for purposes of application of the provisions of section 2 of article 32 of the TBS, is already sufficiently complete and clarifying of the Tax Authority's position, it is concluded that any argumentation at this level would result in a mere tautological exercise.

Furthermore, the Large Taxpayers Unit merely applies what constitutes the legal-tax doctrine of the Tax Authority, set forth in opinions and information of the organisms responsible for each tax, being bound by these as the Claimant itself recognizes in points 69 and 70 of the complaint, and in that measure its response cannot be other than the rejection of the Claimant's position regarding the extension of the concept of capital shares for purposes of those provisions.

Given this, and having nothing further to add, the understanding of the inspection services is confirmed as already fully demonstrated in the Inspection Reports in which it is understood that supplementary contributions and ancillary contributions that follow the regime of supplementary contributions are classifiable to the concept of capital shares established in section 2 of article 32 of the TBS, thereby purging from taxable profit the financial charges incurred with financing for the cession of these same contributions.

Of the non-deductibility of financial charges in light of article 23 of the CIRC

As a subsidiary argument, it was argued by the inspection services of the Large Taxpayers Unit that the deductibility of financial charges incurred by the Claimant with the granting of ancillary contributions subject to the regime of supplementary contributions to its subsidiaries would not be acceptable, since "the financial means generating the charges are not used in the exploitation of the entity that bears them, with the added fact that they are not remunerated and, in this way, do not contribute to the obtaining of income."

Also, "in the specific case of SGPSs, even viewing a taxation of future income, based on the increase of activity and concomitantly of dividends of the subsidiaries, due to the effect of supplementary contributions, these results that flow to SGPSs are mostly excluded from taxation (gains and dividends)."

The inspection services of the Large Taxpayers Unit justified this understanding with existing jurisprudence on the matter, namely with the decisions handed down in the scope of Proceedings No. 186/06, No. 1046/05 and No. 0107/11 of the Supreme Administrative Court, and No. 06826/13 and 5251/11 of the Central Administrative Court, whose object all concerned precisely on the possibility or not of a company deducting charges incurred with financing obtained to in turn finance its subsidiaries.

In turn, the claimant rejects this conclusion since, in its view, it stems from a mistaken interpretation of the principle established in article 23 of the Corporate Income Tax Code, and its classification with the legal regime of holding companies, as well as the nature of its income.

It even states that there is on the part of the inspection services an abusive interpretation of the legal norm referred to by restricting its scope with respect to its own income, this being supported by decontextualized citations of the jurisprudence mentioned in order to support its own conclusions, in addition to which these rulings all concern entities whose corporate activity is not the management of shareholdings, its case.

Now, in this respect we could not be more in disagreement with what is argued by the Claimant, let us see:

Ignoring, for now, the nature of the Claimant as a SGPS, according to the jurisprudence advanced by the inspection services, which, it must be said, demonstrates a well-defined orientation by the courts on this matter, as a rule, a parent company cannot deduct any financial charges associated with a credit contraction whose destination will be, in turn, to finance its subsidiaries, in the form of supplementary contributions or ancillary contributions that follow the regime of supplementary contributions.

The apparent reason for this position of the courts is connected to the fact that companies do not have as their corporate purpose, that is, the activity or activities to be developed by the company, the granting of credit, unless of course own types, maximum, credit institutions, and in the view of the Claimant SGPSs.

The law requires that the corporate purpose be indicated with precision and clarity, indicating the activity or activities to be developed by the entrepreneur, and must be correctly drafted in Portuguese, so it is understood to be prohibited the insertion of foreign terms, except when there is no corresponding term in Portuguese.

The Claimant, however, understands that SGPSs are one of these own types of companies that has as its corporate purpose the granting of credit to its subsidiaries, as the immense set of CAAD decisions brought by the Claimant demonstrates, and whose identification is unnecessary since its tendency is univocal and its justification in all identical, grounded in the legal regime of SGPSs itself, namely, in article 5, section 1, paragraph c) and sections 2 and 3, but not only.

In fact, in the view of the Claimant, the ruling handed down in the scope of proceeding No. 1046/05 supports this conclusion, by suggesting that if the company targeted were a SGPS (which it is not) such charges would already be fiscally accepted, refuting the conclusions of the ruling handed down in the scope of proceeding No. 186/06, from which it is transcribed that "even if the appellant had as its purpose the management of shareholdings – which it does not – nor thus could such interest be qualified as a cost (...)".

Thus it may appear at first glance but the truth is that this citation is decontextualized from the proceeding and its factual matter.

Now, it refers in points XVII and XX of the learned ruling, respectively, that "in resorting to the Supreme Administrative Court Ruling of 10/07/2002 regarding the assumption of losses of a subsidiary by a SGPS, it is relying on jurisprudence that has no application to the case," and "we are, thus, before the analogous application of a decision (Supreme Administrative Court Ruling of 10/07/2002) to a situation that is not subsumed to that which was the object of that same decision."

From this it is inferred that with resort to analogy, the appellant in the proceeding, not being a SGPS, sought in its allegations to equate itself to one for purposes of applying the mentioned ruling, as well as sought to equate the financial charges incurred by it with loans to finance the subsidiaries to a coverage of losses or damages in the subsidiary.

In this case, the court did not diverge from the position established in the ruling handed down, for example, in the scope of proceeding No. 186/06, but limited itself to stating that the corporate purpose of the appellant was not that of management of shareholdings or financing of risk companies and in that measure could not resort to the Supreme Administrative Court Ruling of 10/07/2002 (Proc. No. 0246/02).

It is added further that the object of the claim in the scope of that proceeding was not the financial charges incurred with loans to finance the subsidiaries through ancillary contributions but rather the granting of credit to cover losses of a subsidiary.

As for the Ruling of the Central Administrative Court of the South handed down in the scope of proceeding No. 06826/13, which the Claimant asserts that there is no "any information about whether the challenger of the same constituted a SGPS," since it is part of the corporate purpose of these the indirect exercise of economic activities.

It is stated in the summary of the learned ruling that "it constitutes established jurisprudence of the Supreme Administrative Court, which in light of article 23 of the CIRC, are not to be considered as fiscally relevant the costs with interest of bank loans contracted by a company and applied in the gratuitous financing of companies that are its associates."

This conclusion appears to be the consequence of several decisions in this sense which, despite already cited by the inspection services, should be recalled here.

See the Ruling of the Central Administrative Court handed down in the scope of proceeding No. 5251/11, from which the summary states the conclusion that "having the parent company decided to make ancillary contributions of capital with the regime of supplementary contributions in its subsidiaries to, among other things, strengthen its capital stock, the charges relating to loans contracted for that purpose, because directly connected with the exercise of the activity of the subsidiaries, constitute a fiscal cost of these, not of the parent company."

Nor is there any difference in treatment with charges of this nature in the Supreme Administrative Court Ruling handed down in the scope of proceeding No. 0107/11, where it is recognized that such charges can only be accepted fiscally if they meet the criterion of their indispensability for realization of the income required by article 23 of the CIRC.

It is read and transcribed from the learned ruling the following:

"The essential expense is equivalent to every cost realized in order to obtain income and which represents an economic decline for the company. As a rule, therefore, the tax deductibility of the cost depends only on a causal and justified relationship with the activity of the company."

Thus, "for a given item to be considered a cost of that company it is necessary that the respective activity be developed by it itself, not by other companies. Unless it were this way, how could the exercise of the activity of another be imputed to a company with which it had some relationship."

In fact, this understanding stems from another Supreme Administrative Court Ruling which addresses an identical situation handed down in the scope of proceeding No. 01077/08, which the judges of that court limited themselves to replicate.

Given this, the judges agree that "in light of article 23 of the CIRC, should not be considered as fiscally relevant the costs with interest and stamp tax of bank loans contracted by the appellant, even though to its detriment and are not strictly necessary for the obtaining of its individual gains and income, and it is certain that between the appellant and the benefited companies there is a relationship of total domination."

Thus this rule appears to be jurisprudentially assumed for companies in general that find themselves in a group relationship.

Now, it is suggested by the Claimant that none of the jurisprudence mentioned in the Final Report, and it is presumed also herein referred, is of interest for its case since despite all these decisions addressing a situation identical to that of the Claimant, as for the companies targeted they do not share the same nature as its, that is, the management of shareholdings.

Given this, it will be safe to affirm that it is the subsidiaries to whom the ancillary contributions that follow the regime of supplementary contributions are attributed, given the non-onerous character of these and particular regime of their restitution, and not the Claimant, the grantor of these same contributions, the beneficiaries of their granting, and it would be in the sphere of these that the tax deductibility of these charges would have to be appreciated.

By all the foregoing, and in what in the view of the Large Taxpayers Unit constitutes a well-defined and majorly defended orientation by the tax courts, if not even univocal, with the due reservation of not being able to conduct an extensive analysis of all national jurisprudence at this level, the financial charges incurred with the obtaining of credit by the Claimant to finance its subsidiaries cannot be accepted since they do not meet the requirement of the indispensability of connection of expenses with the realization of income contained in section 1 of article 23 of the CIRC.

3.1.4 Conclusion and proposed decision

Due to the fact that ancillary contributions that follow the regime of supplementary contributions integrate the concept of capital shares referred to in section 2 of article 32 of the TBS, the financial charges incurred with the obtaining of credit for the realization of these do not contribute to the formation of taxable profit, and the Claimant's claim should be dismissed, maintaining the correction made.

Subsidiarily, even if those were not considered capital shares, under the terms of section 1 of article 23 of the CIRC, these financial charges could not be fiscally accepted in the sphere of the Claimant to the extent that they do not meet the requirement of connection of costs for the realization of its income.

n) The ruling referred to in the previous paragraph was notified to the Claimant through Official Letter No. …, of 16 October 2014, of the Tax Management and Assistance Division (DGAT) of the Large Taxpayers Unit (UGC);

o) A tax execution was initiated, which has No. … 2014 …., for collection of the amount of €677,380.24, corresponding to the aforementioned assessments of Corporate Income Tax and compensatory interest, plus default interest (document No. 12 attached to the request for arbitral pronouncement, the content of which is considered as reproduced);

p) On 02-05-2014, the Claimant provided bank guarantee to suspend the tax execution referred to in the previous paragraph (document No. 12 attached to the request for arbitral pronouncement, the content of which is considered as reproduced);

q) On 13-01-2015, the Claimant filed the request for constitution of the arbitral tribunal which gave rise to the present proceeding.

2.2. Unproven Facts

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

2.3. Justification of the establishment of the facts

The proven facts are based on the Tax Inspection Report and the documents attached to the initial petition, with no controversy regarding them.

3. Questions of Law

The Tax and Customs Authority made corrections to the taxable income of the year 2011 of companies B…, SGPS, S.A. and C…, SGPS, S.A., which are members of the group of which the Claimant is the parent company, understanding that the financial charges incurred by those companies for realization of ancillary contributions under the regime of supplementary contributions to its subsidiary companies should not be considered as expenses.

The correction made has a dual basis.

In the first place, the Tax and Customs Authority understands that the limitation contained in section 2 of article 32 of the Tax Benefits Statute (TBS) is applicable to this situation, since supplementary contributions fall within the concept of "capital shares."

Beyond that, the Tax and Customs Authority understood, in summary, that the aforementioned financial charges do not meet the requirements to be considered as expenses, required by article 23 of the CIRC, by having been incurred for the benefit of other legally and economically independent entities.

Being independent grounds, each with the potential to sustain the corrections made, they will be assessed separately, without prejudice to, if it is concluded that one of them has legal support, the examination of the other will be superseded, as unnecessary.

3.2. Question of the qualification of supplementary contributions as "capital shares" for purposes of article 32, section 2, of the TBS, in the wording in force in 2011

Article 32, section 2, of the TBS established, in the wording in force in 2011, the following:

"2 - The gains and losses realized by SGPSs, by SCRs and by ICRs of capital shares of which they are holders, provided they are held for a period of not less than one year, and, as well, the financial charges incurred with their acquisition do not contribute to the formation of the taxable profit of such companies."

From the final part of this norm it results that financial charges incurred with the acquisition of capital shares do not contribute to the formation of taxable profit of SGPSs.

In the case at issue, the financial charges in question were incurred by B…, SGPS, S.A. and by C…, SGPS, S.A., which are SGPSs, to make supplementary contributions with the regime of ancillary contributions to its subsidiaries, so the applicability of this norm to the situation depends on the qualification of these supplementary contributions as "capital shares."

Thus, "in the determination of the meaning of tax norms and in the qualification of facts to which they apply, the general rules and principles of interpretation and application of laws are observed" (article 11, section 1, of the General Tax Law), which constitutes a reference to article 9 of the Civil Code.

In section 2 of the same article 11 it is established that "whenever, in tax norms, terms proper to other branches of law are employed, they must be interpreted in the same sense that they have there, unless another follows directly from the law."

From this norm it results that, although the rule is that the terms used in tax norms must be interpreted with the same scope that they have in other branches of law, there is an exception, which is when it directly follows from the law that the meaning of the term used in the tax norm is different from what it has in other branches of law.

In fact, it is an exception that is in harmony with another general interpretive rule, which is that special law takes precedence over general law in its specific domain of application. That is, if it directly follows from a tax norm, special for the situation it regulates, the meaning of a certain term, it will not matter to know if that meaning corresponds or not to that which is used in general law, since that meaning directly resulting from the law for a specific situation must necessarily be the one that must be adopted and not the meaning with which it is used in any norm that does not have the nature of special law for the said situation.

In any case, from section 2 of article 11 of the General Tax Law it results that, in good hermeneutics, the first task of the interpreter of tax law to ascertain the scope of a term used therein is to ascertain whether it directly follows from the tax law the meaning of that term.

Only if one is not before a situation of this type can one appeal to the meaning of the terms used in other branches of law.

Now, in the case at issue, for clarification of the question of whether supplementary contributions are covered by the concept of "capital shares" there is a norm from which it directly follows that those are not encompassed in this concept, which is section 3 of article 45 of the CIRC, in the wording of Decree-Law No. 159/2009, of 13 July, in force in the year 2011.

Section 3 of article 45 establishes the following:

"3 – The negative difference between gains and losses realized by means of onerous transmission of capital shares, including their redemption and amortization with reduction of capital, as well as other losses or negative patrimonial variations relating to capital shares or other components of equity capital, namely supplementary contributions, contribute to the formation of taxable profit in only half their amount."

Two concepts are used in this norm: that of "capital shares" and that of "other components of equity capital."

"Capital shares" are also "components of equity capital," as is inferred from the word "other," but the scope of "capital shares" is necessarily more restricted than that of "equity capital," which will encompass, in addition to "capital shares," also "the other components."

As the norm is drafted, supplementary contributions will be encompassed in the concept of "other components of equity capital" and not in "capital shares," since the reference to those appears following this latter concept and not to the first.

In truth, if it were understood, for this purpose, that supplementary contributions were integrated into the concept of "capital shares," it is obvious that the reference to them would be included following this concept and not following the concept of "equity capital:" that is, it would be said "(...) losses or negative patrimonial variations relating to capital shares, namely supplementary contributions, or other components of equity capital contribute to the formation of taxable profit in only half their amount."

That reference to supplementary contributions did not exist in the wording of article 42 of the CIRC ([1]) of Law No. 32-B/2002, of 30 December ([2]), only being made in the wording introduced by Law No. 60-A/2005, of 30 December, so the legislative change was made with the intention of clarifying the tax scope of the concepts used, namely the concept of "capital shares," showing that it, from the perspective of the CIRC legislator, did not include supplementary contributions.

As it is a change with clarifying scope, it is to be presumed with reinforcement that the legislator knew how to concretize in adequate terms that objective (article 9, section 3, of the Civil Code), and if intended to make explicit that supplementary contributions, for purposes of Corporate Income Tax, fall among the "other components of equity capital" and not in "capital shares."

This delimitation of the concept of "capital shares" which is extracted from the aforementioned section 2 of article 45 is made for purposes of determining losses, which is included in the matter addressed by article 32, section 2, of the TBS (it is a norm that eliminates with respect to SGPSs the general tax relevance provided for in the CIRC for gains and losses) so, being necessary to presume that the legislator expressed his thought in adequate terms (under the terms of the aforementioned article 9, section 3, of the Civil Code), the conclusion is justified that the same concept of "capital shares" was used in the special norm as was used in the norm that provides for the general tax relevance.

Beyond that, the norm of article 32, section 2, of the TBS was reformulated by Law No. 64-B/2011, of 30 December, already after the change introduced by Law No. 60-A/2005 in article 45 of the CIRC and the new wording of that norm maintains the reference only to "capital shares" without any allusion to "other components of equity capital" to which article 45, section 2 alludes.

This conclusion, extracted from the literal tenor of article 32, section 2, of the TBS, combined with article 45, section 2, is confirmed by the reason for the special regime of gains and losses realized by SGPSs, which does not apply with respect to supplementary contributions, as is proficiently explained in the ruling of CAAD handed down in proceeding No. 12/2013-T, in these terms:

"in general, the regime of gains is intended to grant a favorable special regime to tangible and financial assets (shares and quotas) of companies, as a way of combating the lock-in effect – phenomenon that in a realization-based tax system restricts the rational flow of economic assets (purchase and sale) for reasons related to tax constraints (payment of tax). Basically, to avoid the scenario of a subject who does not sell an asset (share or quota) of which he is a holder – and all economic reasons would advise him – merely due to the fact that he will pay at that moment a high tax (because taxation is only discharged upon sale of the asset and not upon its annual appreciation). It is this reason that justifies the infra-taxation of tangible and financial assets (shares and quotas), embodied in a special tax regime for the taxation of gains.

And none of this occurs with supplementary contributions. They are returned, at par, according to the rules of commercial law. There is no, nor is one seeking to create, a (secondary) market of voluminous transactions of supplementary contributions. And it is not credible that the scant holders of supplementary contributions below par do not wish to receive their nominal value, with fear or apprehension of the payment of tax associated; or that this is an economic obstacle such that it justifies creating or inserting them into the special regime of gains and losses."

Thus, it is concluded that article 32, section 2, of the TBS, in the wording in force in 2011, by establishing, referring to "capital shares," that "do not contribute to the formation of taxable profit" of SGPSs the "financial charges incurred with their acquisition," does not eliminate the tax relevance for the formation of taxable profit of financial charges incurred with supplementary contributions.

Therefore, the corrections made do not have legal support in article 32, section 2, of the TBS.

3.3. Question of the indispensability of financial charges incurred with supplementary contributions to subsidiaries for the formation of taxable profit of B…, SGPS, S.A. and C…, SGPS, S.A.

The non-consideration by the Tax and Customs Authority of the aforementioned financial charges with supplementary contributions to subsidiaries for the formation of taxable profit of the Claimant was also based on the understanding that such expenses cannot be considered indispensable for the formation of taxable profit of B…, SGPS, S.A. and C…, SGPS, S.A..

This question was already assessed, with the same factual and legal assumptions, in the CAAD proceedings No. 39/2013-T and 734/2014-T, with whose decision it agrees, so its justification will be followed.

3.3.1. The interpretation of the concept of indispensability of costs or losses

The interpretation of the concept of indispensability contained in article 23 of the CIRC has, in Portuguese legal-tax doctrine, in TOMÁS TAVARES and ANTÓNIO PORTUGAL, authors of nuclear works regarding the clarification of such concept.

For the first of these authors: "The legal notion of indispensability is outlined, therefore, from an economic-business perspective, by fulfillment, direct or indirect, of the ultimate motivation for obtaining profit. Indispensable costs are equivalent to expenses incurred in the interest of the company or, in other words, in all acts abstractly subsumed in a profit-making profile."

And he continues: "(…) Indispensability subsumes every act realized in the interest of the company…The legal notion of indispensability thus represses acts inconsistent with the company's purpose, not insertable in social interest, especially because they do not aim at profit."

The second author, regarding the question of which is the best interpretation of the concept of indispensability, expresses the following position:

"The solution adopted among us (at least in doctrine), following the understandings advocated by Italian doctrine, has been to interpret indispensability as a function of the corporate purpose. This position is present from the outset in the writings of Vítor Faveiro, who traces the indispensability of the expense to its assessment as a management act depending on the concrete corporate purpose, refusing that this indispensability can be assessed freely from any subjective judgment of the law applier."

These works thus sustain that any economic decline (expense) that has a relationship with the corporate purpose, whether incurred within the scope of the activity, or evidences a business purpose, will meet the requirement of indispensability.

On the jurisprudential level, and especially with respect to the deductibility of expenses relating to interest incurred by companies that apply borrowed capital in the financing of subsidiaries, the Supreme Administrative Court Ruling of 7 February 2007 deserves emphasis, in which it is stated:

"From this it results that the costs foreseen there cannot fail to concern, first and foremost, the taxpayer company itself.

That is, for a given item to be considered a cost of that company it is necessary that the respective activity be developed by it itself, not by other companies.

Unless it were this way, how could the exercise of the activity of another company with which it had some relationship be imputed to a company.

The amounts in dispute correspond to interest on bank loans and stamp tax incurred by the appellant and applied in gratuitous financing of a company that is its associate.

Such items are thus not directly related to any activity of the taxpayer inscribed in its corporate purpose, which is real estate business and management and not the management of shareholdings or financing of risk companies, nor do they even relate, even indirectly, to its activity."

Here too the notion of activity or social interest is revealed to be the striking feature in the fiscal admissibility of expenses, when assessed by article 23 of the CIRC. And in the jurisprudence cited by the Claimant and the Tax and Customs Authority, as was to be expected, the question predominates of connection of the fiscal admissibility of financial expenses depending on whether it is considered that the financing entity does or does not realize, in these operations, its own activity.

Now, in light of what has been referred to, it is clear that, both at the doctrinal level and in the jurisprudential sphere, the connection to activity will be the nuclear element of the interpretive key of the concept of indispensability. Thus, and for the case at issue, the analysis of what is understood by "activity" of the companies, in particular of a SGPS, is revealed as essential.

Let us then see, on a general level, what we understand by activity of societal entities; and then, in the case at issue, what should be understood by own activity of a SGPS.

3.3.2. The activity of companies

The activity of a societal entity consists of the operations resulting from the use and management of its resources. Such resources are, in the first instance, the assets that appear in its respective patrimony.

From the notion of "asset" that the accounting normative establishes, it can be concluded that it will be activity both the management of a tangible fixed asset, as of an intangible one, as of a financial asset, or any provision of service.

Thus, suppose that company ALFA participates in company BETA in the proportion of 100%. The first is thus the holder of a financial asset. What "activity" results in the sphere of ALFA from the participation that it holds in BETA?

The first can intervene in the second, controlling its financial and operational policies so as to obtain benefits from it, determining the production of new goods or services, the minimization of expenses, or other measures that increase its future economic benefits (I would put it this way and not refer to operational profit since it can increase not only operational profits but also financial results). But it is also clear that ALFA can intervene in BETA at the level of financial operations. Either by increasing the capital of BETA in order to increase its investment capacity, or to provide it with financial means to strengthen its cash position.

The entity ALFA, in the exercise of its own activity, administers and makes decisions regarding a financial asset, which results from the said participation. This constitutes activity of ALFA and not of BETA. The latter benefits from this activity, suffers the effects of the decisions of ALFA, but does not develop the activity of management of the participation.

If the managers of ALFA execute operations that affect the financing of BETA, they are not developing activity of third parties. They are developing own activity of ALFA, derived directly from the management of the financial asset translated into the participation in BETA. The company BETA has the nature of a subsidiary entity, which gives the decisions of the parent company the qualification of an own activity, inherent to its scope: the management of such participation. And this management can involve financing operations that are part of the activity of the parent company.

The subsidiary is not any entity foreign to the activity and interests of the parent company. There is no an expense in the sphere of the latter that has nothing to do with its corporate interest. The expense with interest incurred with capital obtained and subsequently contributed to the subsidiary is incurred in the interest of the parent company, in a direct consequence of its activity of management of an asset that emerges from a participation, which is real or potentially a producer of income.

3.3.3. The activity of SGPSs and the deductibility of the financial charges in question

In accordance with the provisions of article 1 of Decree-Law No. 495/88, of 30 December ([3]), holding companies (SGPSs) have as their sole corporate purpose the management of shareholdings in other companies, as an indirect form of exercise of economic activities, and a participation in a company is considered an indirect form of exercise of the economic activity of that company when it does not have an occasional character and reaches, at least, 10% of the capital with voting rights of the subsidiary, whether by itself or through participations of other companies in which the SGPS is dominant. ([4])

A participation in a company is considered an indirect form of exercise of the economic activity of that company when it does not have an occasional character and reaches, at least, 10% of the capital with voting rights of the subsidiary, whether by itself or jointly with participations of other companies in which the SGPS is dominant.

In light of the foregoing, it is clear that the activity of SGPSs – a concept essential to assess the indispensability of expenses incurred by these within the application of article 23 of the CIRC – not only encompasses the management of shareholdings, but this is its sole corporate purpose.

Now, the management of shareholdings will naturally involve its acquisition, the administration operations carried out by the parent company necessary to enhance the value of the acquired financial asset, the financing of such asset and the eventual subsequent disposal. All of this can be subsumed in the activity of a SGPS.

Thus, the financing of a subsidiary stems from the interest of the parent company, in order to, by ensuring the financial sustenance of the acquired asset, increase its potential as a source of income production.

In such case, the financial charges that result from financing contracted for, subsequently, strengthening the equity capital of a subsidiary are included, form part of the scope of, the activity of a SGPS. There is no doubt about this in light of the provision in the norm, above mentioned, that regulates its activity. ([5])

It is thus concluded that, since these charges are related to the own activity of the SGPS, they meet the requirements on which rests the interpretation of the concept of indispensability of article 23 of the CIRC, designedly in the part of section 1 of this article in which relevance is given to expenses indispensable for the maintenance of the source of income production, which includes charges of a financial nature, expressly referred to in paragraph c) of the same number.

By the foregoing, the second ground of the correction made by the Tax and Customs Authority to the taxable profit of the Claimant, relating to financial charges with the aforementioned supplementary contributions, is also lacking.

Thus, it is concluded that the corrections made do not have legal basis, so they suffer from the vice of violation of law due to error as to the legal assumptions, which justifies the annulment of the acts of assessment of Corporate Income Tax and compensatory interest, as well as the respective statement of account reconciliation that were based on those corrections (article 135 of the Code of Procedure in the Administrative Courts of 1991).

The ruling of the Director of the Large Taxpayers Unit (Tax Management and Assistance Division) of 16-10-2014, handed down in the gracious complaint proceeding No. … 2014 …, which maintained the assessment acts referred to on the same grounds, suffers from the same vice, so its annulment is also justified.

4. Compensation for improper security

The Claimant also formulates a request for compensation for improper security.

As results from the facts established, on 02-05-2014, the Claimant provided bank guarantee with a view to the suspension of the execution proceeding initiated for coercive collection of the debt relating to the tax acts that are the subject of this proceeding, increased by default interest.

In accordance with the provisions in paragraph b) of article 24 of the LRAT, the arbitral decision on the merits of the claim from which there is no possibility of appeal or challenge binds the tax administration from the expiry of the term provided for appeal or challenge, and this must, in the exact terms of the procedural basis of the arbitral decision in favor of the taxpayer and until the expiry of the term provided for spontaneous execution of the sentences of the tax courts, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for that purpose."

In the legislative authorization on which the Government based itself to approve the LRAT, granted by article 124 of Law No. 3-B/2010, of 28 April, it is proclaimed, as the primacy guideline of the institution of arbitration as an alternative form of jurisdictional resolution of conflicts in tax matters, that "the tax arbitration proceeding must constitute an alternative procedural means to the judicial challenge proceeding and to the action for recognition of a right or legitimate interest in tax matters."

Although article 2, section 1, paragraphs a) and b), of the LRAT uses the expression "declaration of unlawfulness" to define the competence of the arbitral tribunals that function at CAAD and makes no reference to constitutive (annulling) and condemnatory decisions, it should be understood, in harmony with the aforementioned legislative authorization, that their competences include the powers that in judicial challenge proceedings are attributed to tax courts with respect to acts whose assessment of lawfulness falls within their competences.

Although the judicial challenge proceeding is essentially a mere annulment proceeding (articles 99 and 124 of the Code of Tax Court Procedure), a condemnation of the tax administration in the payment of indemnificatory interest and compensation for improper security can be pronounced therein.

In truth, although there is no express provision to this effect, it has been peacefully understood in the tax courts, since the entry into force of the codes of the fiscal reform of 1958-1965, that a request for condemnation in the payment of indemnificatory interest can be cumulated in a judicial challenge proceeding with a request for annulment or declaration of nullity or non-existence of the act, for in those codes it is stated that the right to indemnificatory interest arises when, in gracious complaint or judicial proceeding, the administration is convinced that there was error of fact imputable to the services. This regime was subsequently generalized in the Code of Tax Procedure, which established in section 1 of its article 24 that "there shall be a right to indemnificatory interest in favor of the taxpayer when, in gracious complaint or judicial proceeding, it is determined that there was error imputable to the services," later, in the General Tax Law, in whose article 43, section 1, it is established that "indemnificatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount higher than that legally owed" and finally, in the Code of Tax Court Procedure in which it was established, in section 2 of article 61 (to which corresponds section 4 in the wording given by Law No. 55-A/2010, of 31 December), that "if the decision that recognized the right to indemnificatory interest is a judicial one, the payment period is counted from the beginning of the term for spontaneous execution."

With respect to the request for condemnation in the payment of compensation for provision of improper guarantee, article 171 of the Code of Tax Court Procedure establishes that "compensation in case of bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the lawfulness of the enforceable debt is disputed" and that "compensation must be requested in the complaint, challenge or appeal or if its basis is subsequent, within 30 days after its occurrence."

Thus, it is unequivocal that the judicial challenge proceeding encompasses the possibility of condemnation in the payment of improper guarantee compensation and is even, in principle, the appropriate procedural means to file such a request, which is justified by evident reasons of procedural efficiency, since the right to compensation for improper guarantee depends on what is decided on the lawfulness or unlawfulness of the assessment act.

The request for constitution of the arbitral tribunal and for arbitral pronouncement has as its corollary that it will be in the arbitral proceeding that the "lawfulness of the enforceable debt" will be discussed, so, as results from the express tenor of that section 1 of the aforementioned article 171 of the Code of Tax Court Procedure, the arbitral proceeding is also the appropriate one for considering the request for compensation for improper guarantee.

Moreover, the cumulation of requests relating to the same tax act is implicitly presupposed in article 3 of the LRAT, when it speaks of "cumulation of requests even if relating to different acts," which lets it be perceived that the cumulation of requests is also possible with respect to the same tax act and the requests for compensation for indemnificatory interest and condemnation for improper guarantee are susceptible of being encompassed by that formula, so an interpretation in this sense has, at least, the minimum verbal correspondence required by section 2 of article 9 of the Civil Code.

The regime of the right to compensation for improper guarantee is contained in article 53 of the General Tax Law, which establishes the following:

**Article 53

Security in case of improper provision**

1. The debtor who, to suspend execution, offers bank guarantee or equivalent shall be compensated in full or in part for the losses resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the success in administrative appeal, challenge or opposition to execution that have as their object the guaranteed debt.

2. The period referred to in the previous number does not apply when it is verified, in gracious complaint or judicial challenge, that there was error imputable to the services in the assessment of the tax.

3. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest provided for in this law and can be requested in the own proceeding of gracious complaint or judicial challenge, or autonomously.

4. Compensation for provision of improper guarantee shall be paid by deduction from the revenue of the tax in the year in which the payment is made.

In the case at issue, it is manifest that the errors underlying the assessment of Corporate Income Tax are imputable to the Tax and Customs Authority, for the corrections and the subsequent assessments of Corporate Income Tax and compensatory interest were of its initiative and the Claimant in no way contributed to such errors being committed.

Therefore, the Claimant is entitled to compensation for the guarantee provided.

There being no elements that permit determining the amount of compensation, the condemnation will have to be made with reference to what comes to be assessed in execution of this ruling [articles 609, section 2, of the Civil Code of Procedure and 565 of the Civil Code, applicable under the terms of article 2, paragraph d) of the General Tax Law].

5. Decision

On these terms the Arbitral Tribunal agrees on:

– declaring the request for arbitral pronouncement well-founded;

– annulling the assessment of Corporate Income Tax No. 2013 …, the assessment of compensatory interest No. 2014 …, and the corresponding Statement of Account Reconciliation No. 2014 … (compensation No. 2013 …) relating to the year 2011;

– annulling the ruling of the Director of the Large Taxpayers Unit (Tax Management and Assistance Division) of 16-10-2014, handed down in the gracious complaint proceeding No. … 2014 …;

– declaring well-founded the request for recognition of the Claimant's right to compensation for improper guarantee and condemning the Tax and Customs Authority to pay to A. the compensation that comes to be assessed in execution of this ruling.

6. Case Value

In accordance with the provisions of article 306, section 2, of the Code of Civil Procedure and article 97-A, section 1, paragraph a), of the Code of Tax Court Procedure and article 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at €672,217.61.

7. Costs

Under the terms of article 22, section 4, of the LRAT, the amount of costs is fixed at €9,792.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 18-06-2015

The Arbitrators

(Jorge Lopes de Sousa)

(Tomás Cantista Tavares)

(Ana Maria Rodrigues)

([1]) Article 42 of the CIRC, in the renumbering carried out by Decree-Law No. 198/2001, of 3 July, corresponds to article 45, in the renumbering of Decree-Law No. 159/2009, of 13 July.

([2]) The previous wording of the corresponding norm, introduced by Law No. 32-B/2002, of 30 December, was the following:

"3 – The negative difference between gains and losses realized by means of onerous transmission of capital shares, including their redemption and amortization with reduction of capital, contributes to the formation of taxable profit in only half their amount."

([3]) Wording of Decree-Law No. 318/94, of 24 December.

([4]) However, although the sole corporate purpose of SGPSs is the management of shareholdings in other companies, article 4, section 1, of the same law, in the wording of Decree-Law No. 318/94, of 24 December, permits SGPSs to provide technical services of administration and management to all or some of the companies in which they hold participations.

([5]) As already referred, the justification from the ruling handed down in the CAAD proceeding No. 39/2013-T was adopted in sections 3.3.1., 3.3.2. and 3.3.3.